Insight Report The Net-Zero Challenge: Fast-Forward to Decisive Climate Action

In collaboration with Boston Consulting Group

January 2020 World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 Email: [email protected] www.weforum.org

© 2020 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. Contents

Foreword 4

Executive summary 5

1. The world needs to get to net zero, yet emissions continue to rise 6

2. Companies and investors should accelerate individual action – in their own interest 12

3. Ecosystem actions can help overcome barriers to transform 20

4. A call for unilateral government regulation 23

5. Individuals need to lead the change as consumers, voters and leaders 28

6. The way forward: An action plan for all stakeholders 29

Methodology 31

Contributors 32

References 34

Endnotes 35

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 3 Foreword

Four years after world leaders met in Paris to agree on the historic Paris Climate Agreement, it is time to take an honest look at the progress on global climate action to date.

This World Economic Forum and Boston Consulting Group report examines what corporations, governments and civil society have achieved since the accord was drafted in 2015 and assesses the current state of global climate action. This full report, The Net-Zero Challenge: Fast-Forward to Decisive Climate Action, follows “The Net-Zero Challenge: Global Climate Action at a Crossroads” Briefing Paper published in December 2019.

The findings for this report are based on quantitative and qualitative assessments of governments, Patrick Herhold corporations, investors and societies. We conducted interviews with 13 climate experts and 24 Managing Director CEOs and executives of leading companies across all sectors – from energy and industrial firms with and Partner, high direct emissions, to technology, service and consumer businesses with significant influence Centre for Climate over the emissions of their supply chains and products. We analysed corporate data from CDP, a Action, Boston non-governmental organization that collates voluntary emissions disclosures from nearly 7,000 large Consulting Group companies, monitors global emissions and assesses policy frameworks from governments. Our analysis was supplemented with additional research from the Energy Transitions Commission (Mission Possible), International Energy Agency, Intergovernmental Panel on Climate Change, United Nations Environment Programme, Climate Action Tracker and World Resources Institute, as well as previous work by Boston Consulting Group.

At this year’s World Economic Forum Annual Meeting in Davos-Klosters, climate change is high on the agenda. The year 2020 marks the fifth anniversary of the Paris Agreement, and there are high expectations that the 26th UN Conference of the Parties (COP26) in 2020 will deliver a meaningful international response to the climate crisis. With this crucial milestone ahead, we have an opportunity to build a strong, unified call for accelerated action among business and government leaders.

We must turn the trajectory of greenhouse gas emissions around to ensure that global warming stays Emily Farnworth within safe limits. While the risks of inaction are mounting, it is still possible to prevent the worst effects Head of Climate of global warming. The costs of abatement are falling and the technological solutions needed to Change Initiatives, decarbonize our economies are available. World Economic Forum It is within everyone’s power and responsibility to act. This report aims to help clarify the path ahead and encourage the decisive acceleration of climate action.

4 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Executive summary

In 2015, world leaders met in Paris and agreed to limit a global Ecosystem actions can overcome barriers, through temperature rise by the end of the century to well below 2°C collaborations along value chains or with industry peers. It and to pursue efforts to limit the temperature increase even will take a joint effort to overcome existing transformation barriers further to 1.5°C. In the past decade, however, emissions have in sectors where decarbonization costs are too high for individual continued to increase at a rate of 1.5% per annum. A reduction companies to bear alone. Through cooperation in coalitions, of approximately 3-6% per annum between now and 2030 is companies can share the risks of technology development and needed to limit global warming to 1.5-2°C.1 coordinate related investments in the development of low- carbon solutions. They can generate a demand signal through Progress on climate action to date has been limited. On joint commitments or standards, and set up self-regulating the government side, while 121 countries have now committed bodies in areas where government policies fall short. to be carbon neutral by 2050,2 they account for less than 25% of emissions. None of these countries are among the top five Investor action can enable transparency and support long- emitters, and few, in spite of the commitment, have enacted term decarbonization plans. Investors can coordinate to define policies that are robust enough to produce the desired effects. and apply standards for disclosure and reporting. Such efforts On the corporate side, only a minority of companies fully can encourage companies to address their climate-related disclose their emissions. Even fewer have emissions targets or risks. Even more importantly, investors can increase scrutiny on are in the process of making reductions in line with the Paris long-term climate risks and opportunities, and encourage asset Agreement trajectory.3 And while investors have begun to managers to set long-term targets and strategies towards net- recognize the importance of assessing climate-related risks, zero emissions. liabilities and opportunities, much of their day-to-day decision- making continues to be dominated by an emphasis on short- Governments can unilaterally enact national regulation to term performance. In light of this global inertia, public pressure reduce emissions immediately. Many countries can benefit and global activism have surged in recent years, especially economically from carbon abatement investments. To deliver on among the youth and in Western countries. However, public the net-zero ambition, they would need to enact ambitious policy education on the threat of climate change and related climate frameworks that include a meaningful price on greenhouse gas action is still insufficient to make this a global phenomenon. emissions. However, while carbon pricing is regarded as an effective and necessary lever, it is unlikely to be sufficient. For Since progress in international negotiations is one thing, abatement costs differ widely across sectors, which disappointing, corporations and governments need to implies that carbon prices incentivize some sectors to move move unilaterally. The world needs cohesive and swift global earlier than others – while practically all sectors would need to policy action – and progress is urgently needed at the Annual start abating today. Alongside carbon pricing, sector-specific Meeting in Davos-Klosters and the COP26 this year. But with regulations and incentives would promote remedies such as a the slow pace of international climate negotiations to date switch from fossil fuels to renewable energies, electric mobility, and the complex political context, the reality is that a global efficiency, green building standards – supported by accelerated consensus will very likely not be established soon enough to innovation. As long as the world as a whole is moving slowly, counter the crisis. Individual governments and corporations national efforts will also require measures to protect emission- can and should move ahead with unilateral initiatives; it is about intensive industries from high-carbon, low-cost competition, realizing savings from efficiency improvements, managing through mechanisms like cross-border carbon taxes and low- risks, pursuing new opportunities and maintaining the long- carbon product standards. term licence to operate. While no single actor can halt global warming alone, efforts by leading industrial nations or large Individuals need to drive climate action in their roles as corporations can have a multiplier effect. consumers, voters, leaders and activists. The transition to a net-zero economy will be a transformational shift for all of Corporations can accelerate individual action and society. Individuals have to take the lead in inciting governments, commit to meaningful short- and long-term reductions. businesses and every part of society to move. Companies in all sectors can do much more to reduce the emission intensity of their business and supply chains The world is at a crossroads: We must fast-forward to through measures that cost them little or nothing, and can decisive and cohesive action. The coming decade will offset residual emissions. All should actively monitor and determine whether humanity retains a fighting chance to limit manage their climate-related risks and increase their efforts warming to 1.5°C or even 2°C. The later action is taken, the to achieve a 1.5-2°C world (for example, with internal more dire our position will become. The technologies for a carbon pricing), anticipating a future with more stringent low-carbon transformation are largely available, the barriers to policies and greater societal mobilization. Most can develop action are vastly overstated and the consequences of inaction new business models that contribute to achieving a low- are well known. Climate action is still too often perceived as a carbon economy and capitalize on the new value pools for cost or a trade-off with other priorities. In light of the facts, it “green” products and services. should be viewed as an opportunity for businesses, countries and individuals to create an advantage in building a better, more sustainable world.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 5 1. The world needs to get to net zero, yet emissions continue to rise

The UN Environment Programme’s Emissions Gap Report 2019 found that global greenhouse gas (GHG) emissions, 4 including from land-use changes such as deforestation, hit a new high of 55.3 gigatonnes (Gt) of CO2 equivalent in 2018. Despite commitments from individual governments and companies over the past decade, emissions have risen by 1.5% per year. Should this pattern continue, the world is projected to warm by 3°C to 5°C by 2100, with catastrophic effects on human civilization.

According to the Intergovernmental Panel on Climate Change (IPCC), limiting global warming to 1.5°C requires net human- 5 caused carbon dioxide (CO2) emissions to fall by 45% by 2030 and to reach net zero by 2050 (see Figure 1). Even limiting the temperature rise to 2°C will require CO2 emissions to fall by 25% by 2030, requiring a turnaround of the present trend.

Figure 1: The world needs to move to “net zero”, 2010-2100

Global net CO2 emissions pathways Gt per year

Current trajectory1

Paris pledges2 40

2°C compatible path3

0

1.5°C compatible path4

-20 2010 2020 2050 2100

1. Assumes CO2 emissions grow from 2018 to 2050 at the same rate as the Current Policies Scenario in UNEP’s Emissions Gap Report 2019 (1.1% compound annual growth rate); 2. Assumes countries decarbonize beyond the same annual rate that was required to achieve their INDCs between 2020 and 2030; 3. Assumes a 25% reduction by 2030 and net zero by 2070; 4. Assumes a 45% reduction by 2030 and net zero by 2050. Note: Other GHG emissions are also to be reduced by more than 50% in pathways limiting global warming to 1.5°C.

Sources: IPCC; UNEP, Emissions Gap Report 2019; BCG analysis

Globally, emissions are stagnating or rising in all major 2. Volume growth in emission-intensive industry sectors is economic sectors. Based on today’s policies, this dynamic projected to continue, for example in cement (growth of is not forecast to change over the next 10 to 20 years (see 30% by 2040) and steel (growth of 10-15% by 2040). Figure 2). For example: These sectors have few low-carbon alternatives, and those that exist are costly. The demand for plastics, 1. Demand for energy continues to increase – and another high-emission industry with limited economically hydrocarbons are meeting much of the demand. Global viable low-carbon production alternatives, could increase energy demand rose by 2.3% in 2018 and is expected to by up to 150% by mid-century.7 continue to grow by more than 25% between now and 3. Hard-to-abate transportation sectors are also still 2040.6 A large part of the energy consumption is coming growing considerably. By 2050, freight demand is from emerging economies that are investing in carbon- expected to triple, and demand in aviation will likely more heavy projects to boost economic growth. than double.8

6 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Major turnaround needed across all sectors 1 Figure 2: Major turnaround in emissions trajectories is needed across all sectors, 2015-2050

1 Emissions trajectories (Gt CO2e from 2015 to 2050) Current trajectory Below! 2°C path

Power2 Industry Illustrative sectors Transport Illustrative sectors Cement Heavy!5 Road 15 5 5

10 3 3

5 1 1

2015 2030 2050 2015 2030 2050 2015 2030 2050

Buildings3 Steel Aviation 5 5 5

3 3 3

1 1 1

2015 2030 2050 2015 2030 2050 2015 2030 2050

1. IEA Reference Technology Scenario; 2. IEA Current Policies Scenario only estimates emissions to 2040 – From 2040 to 2050, same compound annual growth rate assumed for each trajectory as from 2020 to 2040; 3. Buildings includes heat, electricity and cooking.

Sources: IEA, Tracking Clean Energy Progress; BCG analysis

A major turnaround in emissions trajectories is needed in all between them, these countries account for less than 25% of sectors to limit the rise in surface temperatures. The world global emissions (see Figure 3). needs to achieve a net-zero emissions level in order to prevent catastrophic climate change effects. Many of the world’s largest CO2 emitters, in particular, are not doing enough to address the problem. China, which Governments: Commitments and policies are is responsible for a quarter of current global emissions, dramatically insufficient has reportedly resumed construction of the world’s largest pipeline of new coal power plants. In the United States, which Before COP25, only 67 of the UN’s 193 member states is responsible for the planet’s largest share of accumulated atmospheric CO , senior government officials are openly had a net-zero ambition in place. The number has now 2 increased to 121,9 showing signs of progress. However, denying climate science and backtracking on previous regulations and international commitments, including the country’s commitment to the Paris Agreement.10 Figure 3: Few countries have a net-zero ambition to date

121 countries are now aiming to be carbon neutral, but these account for less than 25% of emissions

% Global emissions No target

<25% Net zero commitment

Note: 8 US States - California, New York, Hawaii, Washington, New Mexico, Nevada, Colorado, Minnesota (Washington, New Mexico, Colorado, Minnesota & Nevada committed to 0 carbon energy).

Sources: COP25; CAIT data from World Resources Institute and Eurostat; BCG analysis

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 7 Even the front runners are off track. Of the 121 countries A number of emerging economies, too, are starting to set with net-zero goals, only seven have actually broken this ambitious renewable targets, even if they do not yet have target down into intermediate sector-level targets and a full carbon-neutrality plan. India is currently implementing roadmaps, and have policies in place that could realistically the largest renewable power programme in the world – trigger the reductions.11 Although these seven help point the targeting 175 GW of installed capacity by 2022. Morocco way for others, their combined GHG emissions account for has developed the world’s largest concentrated solar farm, less than 2% of the world’s total (see Figure 4). with the objective of making more than 50% of its electricity generation renewable in just 10 years.18 Nordic countries have been among the few to take truly decisive steps, supported by favourable public opinion Regions and cities are also moving ahead. Around the and social contexts. For example, Sweden’s climate act world, 398 cities have joined the alliance to achieve net- 19 of 2018 enforces annual reporting, sets targets at 1.5°C zero CO2 emissions by 2050, recognizing the benefits of or below and calls for forceful climate policy through the the transition to a low-carbon society. Cities account for 12 country’s dedicated Climate Policy Council. Sweden more than 70% of global energy-related CO2 emissions has set the highest carbon tax in the world, at €114 per and are therefore critical to delivering a climate safe future. tonne,13 is engaging industry in sector-specific dialogue to Megacities under Deadline 2020,20 as well as local cities create meaningful policies and has invested heavily in R&D under the Argentine Network of Municipalities – representing and new technology pilots,14 along with climate-resilient over 660 million people – are following a pathway that would development projects through the UN Green Climate Fund.15 deliver emission reductions consistent with 1.5°C.21 In the United States, eight states are now aiming for zero-carbon The Netherlands has also taken decisive steps, putting energy systems by 2050, including California. in place a Climate Agenda16 and ambitious targets for renewables, reinforced by subsidies and biofuel mandates. Still, the vast majority of governments have held back from The country has regulations on new building energy taking decisive action. Despite the positive business case performanceEven and fewer aims to phase countries out gas boilers have by 2050, sufficient for many policies countries to act, even if unilaterally,22 nations often supported by tax breaks and subsidies. Industrial sectors have to overcome considerable barriers, whether perceived are also subject to energy efficiency and best available or real, including vested interests, polarized electorates and technique (BAT) standards.17 the fear of damaging economic competitiveness.

Figure 4: Only a few countries have a roadmap and robust policies to deliver net-zero ambition

Ambition1 Sector roadmaps2 Policy framework3

Countries: 121 15 7

Emissions: <25% <6% <2%

and 85 others… and many more… Relative size of GHG emissions

1. Countries with a net-zero ambition; 2. Ambition translated into sector roadmaps with targets; 3. Targets supported by an effective policy framework. Note: Countries with emissions >40 million tonnes and those with emissions >75 million tonnes with a net-zero ambition are represented graphically by a flag.

Sources: Emissions data from CAIT (from the World Resources Institute) and Eurostat; Policy analysis by BCG, referencing the IMF, Climate Action tracker and government websites; BCG analysis

8 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Corporations: Only a minority are taking the lead, but the group is growing

The apparent failure of governments to act increases the responsibility for corporations to fill the void. Recognizing the beneficial business case of taking action early, a number of companies have produced ambitious plans to decarbonize their operations and supply chains, thereby safeguarding future licences to operate, preparing for more demanding future regulation or developing innovative business models. More companies are disclosing their emissions and more are signing up to ambitious reduction targets:

– The Science Based Targets initiative, which recently surpassed 300 member companies – The Business Ambition for 1.5°C pledge, which has reached 177 members23 – Commitments, after COP25, of over 500 B Corps to reach net-zero emissions by 2030.24

However, these examples constitute a minority, frequently driven by a CEO’s personal convictions and intentions to secure an executive legacy, or by a particularly engaged workforce or investor group. Of the millions of corporations worldwide, only close to 7,000 disclosed climate-related data via CDP.25 Of those that do report their numbers to CDP, only a third provide full disclosure, only a quarter set any type of emission reduction target, and only an eighth actually reduce their emissions year-on-year (see Figure 5). Too few companies are acting decisively Figure 5: Too few companies are acting decisively

% responses from 6,937 companies

No/partial disclosure1 Disclosure2 …and targets3 …and emission reduction4

Overall 67 91113

Agrifood & Forestry 74 9 9 9 !974

Tech, Media & Hi-tech- 66 9 13 13 !882

Transport 70 8 14 9 !872

Light manufacturing 74 8 10 8 !862

Construction & Infrastructure 71 6 10 13 !819

Industrial goods 65 10 15 10 !753

Services 72 8 6 15 !492

Finance 41 15 10 34 !424 Consumer & Retail 61 9 12 18 !338 Energy 51 13 18 18 !287 Health 63 10 13 14 !234

1. Do not disclose/only disclose partial emissions data; 2. Say there is no facility/source of Scope 1 or 2 emissions excluded from disclosure; 3. Have any form of emission reduction target; 4. Have reduced emissions vs last year. Note: >250m tonne and <100 tonne disclosures are excluded, as likely data errors.

Sources: CDP data (2018); BCG analysis

And even where companies do report targets, most still fall result, to date no robust way of benchmarking corporate below the requirements set in the Paris Agreement. Around climate action exists even among industry peers. This lack 65% of all company targets reported to CDP are short term of transparency makes it too easy for companies to display with an end date of no more than five years. On average, policies that are mostly window dressing instead of actually both short-term and long-term targets are about half of what investing in meaningful emission reductions. would be needed for a 1.5°C world; short-term targets aim for minus 15% instead of minus 30%, while longer-term Companies are even less rigorous in tracking and targets look for 50% reductions instead of carbon neutrality.26 addressing the indirect emissions produced by their value chains and products, known as Scope 3. Fewer than In addition, the lack of common reporting standards makes one in 10 companies reporting to CDP has a target on it hard to compare targets. Companies report very different these emissions. However, given the potentially enormous base and end years. When they commit to targets, they leverage large companies have on supplier behaviour, recent might be referring to absolute emission reduction, emission announcements that such companies as Apple and Walmart intensity, renewable energy use, or any other measure, will scrutinize supply chain emissions offer encouragement. and the volume metrics they use are inconsistent. As a

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 9 The Task Force on Climate-related Financial Disclosures (TCFD), which aims to develop voluntary, consistent climate- Climate change is the single greatest threat related financial risk disclosure standards, has seen a steady that humanity faces. Businesses that don’t stream of supporters sign up but, at over 930 organizations take climate action will be punished by their to date,31 still represents a minority of the investment world. stakeholders as well as by the planet. To trigger the acceleration that is needed, the adoption of disclosure standards would need to be mandatory.

Alan Jope, Chief Executive Officer, Unilever, United Kingdom Public opinion: Pressure is mounting, but not fast enough Investors: Action on long-term climate risks Over the past few years, the inertia on the part of the public and opportunities is still limited and private sectors has caused frustration among citizens’ groups throughout the world, triggering a surge in protest Investors are in a unique position in the climate debate, and climate activism. Movements like Fridays For Future given their short-term financial exposure to long-tail carbon- regularly mobilize millions of people, and the headline- related risks. Corporations will feel the effects of global grabbing acts of groups like Extinction Rebellion have warming when their markets are disrupted or their assets helped to build momentum, especially among the youth. are stranded, whether due to a climate-change-related Such movements are likely to persist and multiply. disaster, regulatory changes, public pressure or legal action. But well before cataclysmic events become more common But while pressure from citizens and consumers may – as the general public and financial markets become more be mounting in some geographies, especially in Europe, aware of climate-related risks to corporate balance sheets – climate change does not yet alarm the vast majority. investors are likely to see valuations decline. Only 16% of adults globally consider climate change to be one of their top three societal concerns, ranking well To mitigate this risk, investors have started to put pressure below unemployment, crime and corruption, according on companies to better understand and disclose their to a September 2019 survey by the market research firm carbon-related risks and develop resilience strategies – Ipsos MORI (see Figure 6).32 While the trend is increasing, individually or through activist groups. For example, Climate with a steady rise from 8% in 2016 and 11% in 2018, in Action 100+ has brought together a consortium of investors many countries it still does not appear among the issues managing a total of $35 trillion to push for disclosure and that worry people the most. Moreover, two out of three emission reductions in their portfolio companies.27 Private respondents globally did not even rank it among their top equity firms are beginning to screen corporations for three environmental issues; air pollution, waste generation climate-related risks that could lower their value to potential and deforestation were larger worries, especially in emerging buyers. The UN-convened Net-Zero Asset Owner Alliance economies.33 In most cases, citizens are not linking trends has brought together investors managing a total of $4 trillion in these environmental areas to GHG emissions and the in assets committed to transitioning their portfolios to net- interdependency with global warming. zero emissions by 2050.28 There has also been considerable growth in the appetite for green finance products. The Until public education on climate challenges catches up, issuance of sustainable debt in 2019 is expected to hit a citizen pressure is not likely to be strong enough to force all high of $350 billion, 30% above 2018.29 governments to the table. And by the time climate change starts to have a more visible impact in the daily lives of On a global scale, however, the impact of investor pressure people around the world, it may already be too late. is still not sufficient. In one-on-one interviews, CEOs say the pressure to deliver short-term returns by far exceeds any demands for long-term decarbonization.30 Unless this trend changes, CEOs will have little incentive to take decisive action.

Similarly, financial market supervisory boards have yet to take a clear stance on best practices for the low-carbon era. The lack of consistent corporate reporting or a reliable framework for assessing climate risk has been a major barrier to progress. Investors are faced with a plethora of environmental, social and governance (ESG) frameworks, which one major bank CEO described as leading to “real confusion and little action” in the investment world. So far, the voluntary adoption of standards has been no substitute for regulated carbon accounting conventions.

10 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action …with stark differences country-by-country Figure 6: Climate change is still not a top concern globally, and engagement varies country-by-country

Germany Japan US India China Turkey1

Developed economies Developing economies

1 Inequality Inequality Healthcare Unemployment Healthcare Unemployment

2 Climate Change Social Programmes Crime Corruption Inflation Inflation

3 Immigration Taxes Immigration Crime Unemployment Immigration

4 Crime Moral Decline Moral Decline Terrorism Environment Terrorism

5 Moral Decline Climate Change Corruption Social Inequality Moral Decline Education

6 Environment Crime Terrorism Education Social Programmes Crime

7 Extremism Unemployment Extremism Climate Change Education Social Inequality

8 Healthcare Healthcare Climate Change Environment Climate Change Corruption

1. Turkey ranks climate change 16th out of the possible 17 concerns. Note: Representative sample of adults aged 18-74 in the US, South Africa, Turkey, Israel and Canada, and aged 16-74 in all other countries. September 2019: 19,531.

Sources: IPSOS, Global Advisor; BCG analysis

Nevertheless, progress has been made. Many governments are gradually increasing their long-term ambitions and are beginning to implement more rigid emission policies. A There is a lot of misinformation about the number of corporate success stories provide lighthouse transition: we need to educate people about the examples for others to follow. Companies increasingly causes of climate change and the solutions. disclose emissions, set more ambitious targets and see climate as a driver for business innovation. More have introduced low-carbon business models to provide Francesco Starace, Chief Executive Officer, ENEL, Italy consumers with a sustainable alternative. Investors are increasing their scrutiny of long-term carbon risk and putting more capital into green financing vehicles. Public awareness around the urgency of the issue is increasing and, with it, broader support for policy measures and evolving customer behaviours. But the most important indicator remains global emissions. As long as these continue to rise, the scale, pace and extent of progress is simply insufficient.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 11 2. Companies and investors should accelerate individual action – in their own interest

Companies can and should do much more to bring down intensive industrial goods companies, to tech and consumer their own emissions. Beyond retaining their social licence goods and services firms, from developing as well as to operate, this is mainly about companies managing developed economies.34 risks, preparing for anticipated changes in regulations and preparing their business models for a low-carbon future. All of the executives shared the view that acting on climate is not only a responsibility, but also a source of competitive For this report, 24 CEOs and executives and 13 climate advantage in their respective sectors – in terms of experts were interviewed. Selected through their affiliation reducing cost, fulfilling the needs of future customers and with the World Economic Forum, these leaders represent attracting the greatest possible talent (see Figure 7). a wide range of sectors and geographies – from energy-

Figure 7: First movers in every sector are building a competitive advantage

Illustrative overview from CEOs and other executives interviewed in the project

Dalmia Cement, BASF, Royal DSM, Suntory, Unilever, ReNew Power, Acciona, Anglo American, Lenzing Heineken, Nestlé Ørsted, Enel, Eni

Becoming the partner of choice by Aiming to serve the customersof the future, Looking to be leaders in the energy transition integrating sustainability in their strategy who really care

PensionDanmark, Siemens, GSMA, Bayer Crop Science, Schiphol, Maersk, UBS, Bank of America Salesforce, Arup Syngenta SkyNRG

Looking at green finance as a new Creating the solutions to help Moving the world to more Aiming to capture the huge opportunity for growth others go green sustainable agriculture demand for green freight

Source: Corporate interviews conducted by BCG in Q3-4 2019; most interviewees are part of the World Economic Forum Alliance of CEO Climate Leaders; Bank of America and Maersk were added according to public statements

Across all sectors, three major levers can enable corporates to radically reduce their emissions and prepare for a decarbonized world, gaining a competitive advantage in the shift to a greener economy (see Figure 8).

Figure 8: Corporates need three major levers to tackle climate change

Reduce GHG Intensity Risk Management Business Model Innovation

Increase the efficiency Update investment criteria Transform the existing of operations (e.g. with a price on carbon) business model

Reduce supply Refocus portfolio Pursue new growth chain emissions of assets in “green” opportunities Sources: CEO interviews; BCG analysis

12 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Companies in all sectors can reduce their opportunities with comparatively short payback periods, and emission intensity at little or no cost often a viable business case for the expenditure. The Carbon Trust, a global organization that helps businesses develop By accelerating the switch to renewable energy, improving sustainable operating strategies, has found that among its energy and process efficiency in their own operations, and partners, investments designed to save around 15% of energy 36 leveraging their buying power to ensure that their suppliers consumption yield an average internal rate of return of 48%. decarbonize, most companies can significantly reduce their Implementing these sorts of levers is a no-regret move for all own emissions and those of their partners. companies to pursue.

Most companies – even in energy-intensive sectors – can still Similarly, most companies can accelerate the transition realize energy and process efficiency gains in the range of to renewables by directly procuring renewable power. For 37 20% (see Figure 9) at little or no cost. Notably, for example, example, RE100, an initiative that more than 215 large the most efficient oil and gas companies have approximately companies have signed up to, has been instrumental in 70% less methane intensity than the upstream average for pushing commitments to 100% renewable energy among the industry, and an International Energy Agency (IEA) analysis leading companies. At a time when the costs of renewable shows that more than 50% of fugitive methane emissions power generation continue to fall, the transition frequently can be abated with a positive return.35 In many instances, results in net cost savings, or at least works economically, such improvements actually provide attractive cost savings given typical carbon price levels imposed by governments or internally within corporations.38

Figure 9: The efficiency potential is still significant in all sectors

!Average Example of best-practice player

Cement Steel Aviation Oil and Gas kgCO2 e per tonne produced kgCO22 e per tonne produced kgCO2 e per passenger km Upstream methane intensity (%)

-20% -19% -31% -71% !646 !2,077 !0.11 !1.10

!526 !1,670 !0.08

!0.32

Renewables Recovery of New fleet, Monitor & repair & waste feedstock process gas & heat high seat density leaks, low flaring

Note: The averages for cement and steel are an average across four large players with available data (among the top 10 by revenue); the averages for aviation and oil and gas are reported industry averages; for oil and gas, the best-practice player is a self-reported upstream average across the 13 members of the Oil and Gas Climate Initiative.

Sources: CDP data; Oil and Gas Climate Initiative data; company annual reports; company sustainability reports; BCG analysis

Even where measures are only near-economic, companies of products) are on average four times higher than the direct should implement them as a means of future-proofing their emissions of the companies that report to them.40 By setting business against growing external pressure from the public, standards on supplier emissions, efficiency or renewable regulators and investors. Already today, companies with energy consumption, companies can help mobilize the overall lower emission intensities are traded at higher valuation decarbonization of the economy and reach the “long tail” of multiples on stock markets. A recent BCG analysis across suppliers that otherwise might be too under-the-radar to feel a range of high-emission industries found that top-quartile the direct pressure of consumer scrutiny. companies in specific ESG metrics (including emission intensity and environmental impact) trade at a premium vs This also means that many companies should increasingly the industry median.39 be prepared to track and disclose end-to-end emissions to consumers who increasingly demand greater transparency on Beyond reducing their own emissions, most companies the products they buy, and to governments that may impose can do much more to decarbonize their supply chains. stricter regulations on the carbon content of products sold in By leveraging their significant buying power, many large their jurisdictions. corporations are able to reduce volumes of GHG emissions that are a multiple of their own operations at limited cost – Companies in a range of sectors are already moving ahead. especially in low-emission industries, such as services and For example, Dalmia Cement has achieved the least carbon- consumer goods. CDP estimates that the Scope 3 emissions intensive cement production in the world (approximately 500 kg

(that is, emissions through the supply chain and from the use CO2e per tonne of cement) by rigorously investing in process

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 13 efficiency, finding clinker substitutes and increasing the use of Enel has fully integrated sustainability into its strategy and renewables.41 Going forward, Dalmia Cement has the ambition operating model to deliver long-term value and become the to become the world’s first carbon negative cement company largest global operator of renewables and networks.48 The by turning to alternative binders and investing in carbon energy company aims to spend 50% of proceeds within capture, utilization and storage technology.42 On upstream the plan period (by 2022) to accelerate the deployment of emissions, Walmart has launched Project Gigaton that aims new renewable capacity and progressively substitute coal to reduce one gigatonne of GHG emissions from its supply generation.49 Enel has also increased its use of sustainable chain between 2015 and 2030 (cumulatively), half of which is finance, to reach approximately 43% of total company debt expected to come from suppliers operating in China. In 2017, by 2022 and 77% by 2030 (today: 22%). The bonds have Walmart launched a sustainability toolkit to help suppliers track allowed the company to sharply reduce its financing costs.50 and reduce emissions. In the first two years since the launch, 43 the initiative reported over 93 million tons of avoided CO2e.

For residual, harder-to-abate emissions, companies can look Enel is now a more sustainable, efficient and 44 at offset measures with real additionality and impact. This can profitable organization, with a substantially be a useful lever particularly in the initial, transition phase. lower risk profile and a greater capability to Companies should de-risk their investments to rapidly adapt to change. avoid stranded assets Francesco Starace, Chief Executive Officer and General Manager, Enel, Italy At the same time, companies should aim to de-risk their investments for the low-carbon transition. In ambitious abatement scenarios, nearly all current investments in coal, Companies should innovate to realize and an increasing share of investments in oil, gas and related opportunities from low-carbon business models infrastructure, could be challenged. This increases the risk of investments becoming stranded. Even for industrial Moving to a Paris-compatible pathway would imply a companies, the investments they make in new assets, long-life significant, and sometimes existential, transformation for asset upgrades or new product development should be carried companies in many industries. And while many companies out with a low-carbon/carbon-neutrality target in mind to avoid would not be able to realize this full transformation alone, potential future write-offs. most can accelerate progress by offering low-carbon products and services and by involving willing consumers in According to the intergovernmental International Renewable their decarbonization journey. Even in the harder-to-abate Energy Agency (IRENA), a global 2°C pathway would result sectors, companies can turn a first-mover disadvantage into in an approximately $5-10 trillion decline in coal, oil and gas an opportunity. infrastructure value until 2050.45 The risk of retrofit costs to industrial plants and building developers, which rely on fossil In the wake of growing global consciousness about the fuels for heat or cooking, is valued at another $5-10 trillion over climate crisis and consumers’ desire to limit the impact of the coming decades.46 their consumption footprint, new markets for lower-carbon products are taking shape. A wealth of examples have To better align their investment decisions to this risk, been available from companies in recent years, which are companies are starting to implement internal carbon prices. generating significant value from credibly serving these For example, Unilever47 has been pricing emissions from its markets – by decarbonizing rapidly, by offering consumers manufacturing operations since 2016 by deducting costs from a “green choice” or by innovating to help customers bring business divisions’ capital budgets. Divisions in turn compete down their own emissions (see Figures 10 and 11). Digital to use the funds (currently about €50 million annually) to instal technologies are key enablers of this innovation. clean technology at operating sites.

The revenue uplift from introducing new climate- To date, several of our sites have now achieved friendly products and services represents the feat of 100% renewable energy for both heat a major opportunity for forward-looking and power by investing funds from our internal businesses, and investors and customers are carbon pricing in clean technologies, increasing showing a preference for innovative companies our energy efficiency, and in switching to that are tackling climate change. The use of renewable energy sources. This future-proofs mobile technologies, such as machine-to- our business from future carbon taxes and machine (M2M) and the internet of things (IoT), regulation. enabled a global reduction in GHG emissions of more than 2 billion tonnes last year. Alan Jope, Chief Executive Officer, Unilever, United Kingdom

Mats Granryd, Director-General, GSMA, United Kingdom

14 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action While existing technologies can decarbonize most renewables, advanced mobility and new fuels, energy emissions, innovation is still needed to achieve a net-zero efficiency solutions, circular economy business models, emissions target by 2050. Companies and institutions carbon capture usage and storage (CCUS), and hydrogen should proactively pursue innovation-delivering solutions technologies. Energy incumbents can look to diversify or that meet society’s needs in new ways. At the COP21 in reposition their portfolio towards new technologies and Paris in 2015, Mission Innovation was launched with the business models, becoming key actors and partners of specific objective to support the accelerated uptake of clean climate action. However, they should also consider the energy and related infrastructure; it is now developing a specific capabilities required and the materiality and scale of framework to identify those innovations that are compatible returns offered. with a 1.5°C world.51 The transition to net zero will offer huge opportunities for In energy, for example, a wide range of potential opportunities entrepreneurs and businesses to address societal needs in is arising from energy transitions: large-scale or decentralized new, improved ways.

Figure 10: Companies are shifting to greener business models

Formerly DONG Energy, the company transformed within a Syngenta develops tools for farmers that help to improve and track

decade from being a coal-intensive utility to a global green energy their practices and to measure CO2 emissions, land productivity and major. Ørsted is the market leader in offshore wind. It led the cost water, fertilizer and pesticide use to help safely produce bountiful food reduction of offshore wind through scale and industrialization (-60% and care for the environment. since 2012) and is looking to do the same for renewable hydrogen. Over the next 5 years, Syngenta will invest $2 billion in scientific innovation to help safely feed the growing population. There is a huge decarbonization potential through electrification from renewable sources, and by turning the Consumers want to know how their food has been produced, North Sea into the powerhouse for Europe with offshore wind including for example how much GHGs have been emitted. So power. We would like to power the change. these tools will become very important in the future.

Henrik Poulsen, Chief Executive Officer Erik Fyrwald, Chief Executive Officer

DSM started in 1902 as a coal company but has undergone multiple Salesforce, building on its leading CRM offer, has introduced transformations and is today a market leader in health, nutrition and a new carbon accounting product to help customers derive sustainable materials. The company aims to reach net-zero emissions insights and decisions based on climate-related data. The by 2050, with 100% renewable electricity use, and has implemented system can generate trusted investor-grade data to inform their a €50 per tonne internal carbon price. For over a decade already, it climate action programmes. has linked executive pay to sustainability targets. DSM’s products and solutions help enable the green transition (e.g. second-generation Companies want to take more action on their emissions biofuels, waterborne resins, solar materials). footprint, but they have no idea what to do or how to monitor their impact now. Carbon pricing has proven to be one of the most effective tools to unlock the potential from the private sector (companies as Suzanne DiBianca, Chief Impact Officer well as investors) to support innovation and low-carbon growth. Feike Sybesma, Chief Executive Officer and Chairman

Anglo American is heading in the direction of carbon-neutral mining, Lenzing became world market leader in specialty fibres made with an intermediate target of a 30% reduction in GHG emissions. from renewable material wood, mainly used in textiles. It markets As for the essential raw materials it produces, the company is its premium brand TENCELTM and aims to have carbon-neutral altering its focus to align with the macro trends of a fast-growing operations by 2050. The company drives demand and brings and urbanizing global population and a cleaner, more electrified and transparency to apparel supply chains by educating customers connected future. on the impact of textiles (e.g. with a blockchain platform from TextileGenesisTM). We are shifting our portfolio more towards supplying those metals and minerals – including copper, PGMs and nickel – We have a first-mover advantage as a sustainable choice in that support a fast-growing global population and a cleaner, apparel. There is a major opportunity from consumers willing to greener, more sustainable world. pay more.

Mark Cutifani, Chief Executive Officer Stefan Doboczky, Chief Executive Officer

Source: Specific companies’ office for sustainability or external communications

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 15 Figure 11: Innovators are seizing opportunities to start new businesses

Aggregates demand for alternative aviation fuels, brokering contracts between airlines and fuel manufacturers to secure production capacity >80% - to date fuels have been made from used cooking oil reduction Supplied SAF and biofuels for Air Canda, Singapore Airlines, KLM, South in GHG emissions African Airways, among others produced

Carved a niche in high-end sports car market before securing the backing and scale to roll out production to mass market vehicles (now has a 27% $60bn share of new US small-medium luxury car sales) market cap Selling even in geographies where regulatory support and charging infrastructure are limited

Developed plant-based burger patty sold in restaurants to replace beef burgers; now entering the grocery market, having raised > $650m in 8K capital to scale operations restaurant deals in only 3 years

Created a restaurant and catering service for low-emission products - all dishes are certified as WWF One Planet Plates (meaning their impact 152 is "within planet limits")

megatonne CO2e saving per year by Delivering all catering by cargo bike and using sustainable packaging 2030 materials

Created a rooftop solar system to replace kerosene lamps

Selling to customers on credit using mobile phones (via M-Pesa money 750K transfers), who own the system outright after 1 year - they can then homes connected upgrade to a stove, etc. to affordable power

Developed transportable, pre-assembled, modular solar panels installable at a rate of 1 MW/week - taking 50% of the normal 10GW instal time solar farm planned Supplier of choice for the Sun Cable project to provide 10 GW of for Singapore power to Singapore

Developed cement cured with CO2 - reducing carbon intensity and acting as a CO sink 2 70% Partenered with LafargeHolcim, increasing production capacity due to faster reduction in GHG time to cure emissions produced

Created an Indian waste collection company that treats waste 45 anaerobically producing methane and an organic slurry - methane is

megatonne CO2e compressed and used as a liquefied petroleum gas substitute and the saving per year slurry is used to replace fertilizer by 2030

Source: BCG analysis

16 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Investors are a critical enabler of corporate initiatives, and has enabled some of the companies profiled climate action in this report to move forward. In the future, even more investors may recognize the opportunities for businesses in Investors have a pivotal role to play in triggering and the transition. facilitating the adaptation of corporate strategies, given their inherent interest to “de-risk” the terminal value Some leading examples of action are Bank of America’s of their investments. Growing investor scrutiny has Environmental Business Initiative and Santander’s motivated a number of companies to accelerate climate Responsible Banking Targets. Bank of America has action, but the momentum needs to increase further, committed to invest an additional $300 billion in capital providing clear guidance to management teams around by 2030 in sustainable energy and transportation, climate shareholder expectations. resiliency and clean water with the belief that this will support innovation towards a low-carbon, sustainable Investors should issue a much stronger call for transparency economy and enable it to deliver long-term value. Santander and disclosure. Too many companies lack awareness aims to facilitate €220 billion of financing linked to the of their economic efficiency potential, as well as of the Sustainable Development Goals by 2030, with an emphasis 53 climate-related risks to their business model. Rigorous on green finance to help tackle climate change. disclosure demands would force companies to create this awareness and to develop resilience strategies for a Another example is UBS, a leader in global wealth and asset 1.5°C or 2°C world. It also makes assessing these risks management, which is actively addressing the growing more straightforward for investors and creates better investor appetite for directing capital into climate solutions. comparability across companies within an industry, hence UBS has developed, for example, a selection of products increasing the efficiency of capital markets. allowing its institutional clients to identify the carbon intensity of their investments and reducing exposure to, rather than Moreover, investors should themselves recalibrate excluding, companies with higher carbon risk, in order their risk assessments. They need to be sure that they to pursue strategic engagement with these companies. understand the impact of various warming scenarios on Furthermore, UBS has committed to integrating ESG their assets, from operational disruption to health and assessments, including a dedicated climate dimension, safety or site closure risks, and that the long tail risks of into all fund and exchange-traded fund onboardings for its both climate change and climate action are fairly reflected private clients. in the valuations they assign to companies. For example, an estimate by Citigroup shows that under a 2°C path, fossil fuel reserves valued today at around $100 trillion would need to remain in the ground.52 Similarly, ambitious We want to be a leading financial provider decarbonization investments may not contribute much to a enabling investors to mobilize capital towards company’s short-term returns, but may significantly de-risk the achievement of the UN's Sustainable long-term earnings. Development Goals and the orderly transition to a low-carbon economy. Finally, investors can direct investments into zero- and low- carbon technologies and offerings. A growing appetite for green bonds and other sustainable finance products sends Sergio Ermotti, Group Chief Executive Officer, UBS, Switzerland a powerful signal that there is support for decarbonization

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 17 To enable or amplify their actions, companies per tonne of CO2 emitted. At the same time, abatement should engage in ecosystems and with is much more expensive, not least given that the needed policy-makers technologies are often still in early development stages (see Figure 12). In steel and cement, alternative processes or materials – hydrogen-based direct reduction process for Even today, companies can – and should – do a lot more steel, innovative binders for cement, CCUS for both – are individually to decarbonize, to realize savings, to de-risk their still in the research or pilot stage, and entail around 100% asset base and to start the transformation of their business additional cost per tonne.54 For aviation and shipping, models with strong positive business cases and shareholder hydrogen-based synthetic fuels like green ammonia and return stories. For many, even full decarbonization is e-kerosene are yet untested and very far from economically possible without significant (relative) cost to their business. feasible, entailing costs that are likely more than double those of traditional fuels.55 The chemical industry would But this does not hold true for all. For companies in hard- need to convert many high-temperature processes for to-abate sectors like steel, cement, chemicals, aviation producing base chemicals, adding a cost burden of at least and shipping, investments in ambitious emission reduction 50% – and could face an even larger challenge if it were to targets are an enormous financial challenge and can be an replace fossil fuels from its feedstock. existential risk. These sectors create comparatively low value

Figure 12: Some high-emissions sectors face a huge financial challenge

$ value added per tonne CO2e emitted

Food manufacturing 0.5GT CO2 total emissions

Car-making Tobacco manufacturing 2,000

Glass and ceramics

1,000 Paper and pulp Steel Cement Basic chemicals Aviation Man-made fibres Shipping

!0 0 40 80 120 160 200 240 !280

$ abatement cost per tonne CO2

Note: Total emissions for chemicals refer to basic chemicals and fertilizers; glass and ceramics total emissions size reflects China only due to data availability; lower bound of total emissions for food manufacturing shown can be up to 2.4Gt CO2.

Sources: Energy Transitions Commission, Mission Possible (2018); company reports; IEA; Oxford Economics; Carbon Trust; Our World In Data; “Energy Consumption and Carbon Dioxide Emissions of China’s Non-Metallic Mineral Products Industry” (Sustainability, vol. 6, 8012-8028, 2014); “Cigarette Smoking: An Assessment of Tobacco’s Global Environmental Footprint Across Its Entire Supply Chain” (Environmental Science & Technology, vol. 52, no. 15, 8087-8094, 2018); BCG analysis

To make it possible for companies in these sectors But while these barriers may prevent companies from to decarbonize, and to accelerate emission reduction moving to net zero today, all industries should understand activities in all others, a number of barriers to action still the circumstances that can make it possible to get there. need to be overcome (see Figure 13). Many countries still Accordingly, even some companies in hard-to-abate lack adequate carbon pricing and supportive regulation sectors have come forward with ambitious commitments. to motivate full decarbonization. Technology development For example, while acknowledging that there is not yet in some applications still needs to accelerate. Moreover, an economically feasible path for doing so, both the a lack of transparency, uncertainty about consumers’ container shipping company MAERSK and the steel willingness to pay and fear of investor focus on short- producer ThyssenKrupp have announced plans to move term results still keep many companies from moving to carbon neutrality by 2050, as well as to implement faster to decarbonize their operations and supply chains, ambitious medium-term targets. Repsol has become or innovating to create greener products. the first oil and gas company to set a net-zero ambition by 2050, with stringent intermediate targets and, in the chemicals sector, LANXESS is aiming to be carbon- neutral by 2040 and has linked management bonuses to its emissions goals.

18 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Figure 13: Significant barriers to broader and bolder corporate climate action

Policy Winners uncertainty and losers: inertia Lack of sector-specific incentives Inconsistent level playing Lack of field consumer Insufficient education price on No reliable carbon Pressure on climate short-term rating Lack of Climate reporting results narrative standards focused on negative

Limited demand Technology for green not available Lack of standards products Abatement GHG Technology measurement costs too high Society Policy Market Investors

Source: Corporate interviews conducted by BCG in Q3-4 2019; most interviewees are part of the World Economic Forum Alliance of CEO Climate Leaders

Ultimately, companies can increase their climate ambition in the very interest of their business. But significant barriers must be met to achieve a net-zero emissions target. For broader and bolder climate action, business leaders will need to work with their peers, suppliers, customers and governments.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 19 3. Ecosystem actions can help overcome barriers to transform

Ecosystem initiatives can help overcome economic and other Similarly, the Natural Climate Solutions Alliance aims structural barriers by fostering collaboration within sectors to increase nature-based solutions to climate change by or across value chains. This is particularly true for those developing a market for credible carbon credits based on sectors where commercial risks significantly limit the room agricultural and forestry measures. Corporate commitments to for individual corporate action. By enabling willing actors to buy carbon credits provide the incentive for farmers to change overcome restrictions on individual companies and agree on their practices and create a market for forestry management risk-sharing mechanisms, they can create the competitive level solutions to develop and grow. playing field necessary for companies to act. More generally, such ecosystems can help accelerate the speed and scale of Where a lack of climate policies has led to inertia among change. businesses that are concerned about abating their emissions while competitors continue to pollute, industry coalitions can Where there is technology uncertainty and the costs of new overcome this paralysing competitive dynamic, either through technology expansion are high, ecosystem collaborations can self-regulation or by coordinating support for more ambitious allow players within a sector or across a value chain to share government policy. For example: the costs and risks (see Figure 14). For example: The Oil and Gas Climate Initiative (OGCI) commits its The Hybrit initiative has brought together players across the member companies (13 of the largest global oil and gas value chain to produce zero-carbon steel with hydrogen-based majors) to joint emission reduction targets with regular direct reduction technology (DRI). The initiative’s pilot plant is monitoring and reporting. Members have agreed to reduce co-funded by Vattenfall, which provides renewable electricity collective average methane intensity from 0.32% to 0.25% by for green hydrogen electrolysis; LKAB, which supplies direct 2025, saving 600,000 tonnes of methane emissions annually 61 reduction iron ore pellets; and SSAB, which will manufacture (15 million tonnes CO2e). the steel. The project aims to start full production by 2035.56 The Carbon Pricing Leadership Coalition62 brings together The Mission Possible Platform,57 developed by the Forum leading companies that advocate for carbon pricing. In and the Energy Transitions Commission, is building similar the absence of ….sufficiently stringent pricing imposed by ecosystem initiatives to develop viable decarbonization governments, many members of the coalition impose internal pathways for transport, aluminium, chemicals and cement, as carbon prices to prepare for likely regulation, and voluntarily well as similar projects in steel. Coalitions of leading companies realign their investment strategy with a decarbonized world. within each sector are being established to provide the critical More momentum behind this initiative would build support for scale needed for financing technology pilot projects, and they what is widely considered the most effective decarbonization are inviting co-investment from governments in public-private policy lever available to governments. partnerships. The Task Force on Climate-related Financial Disclosures In sectors where the market for low-carbon products is (TCFD)63 encourages companies to voluntarily commit to uncertain, causing corporations to hesitate to commit capital, comprehensive and consistent climate-related financial risk ecosystem collaboration can create a critical demand signal to disclosure standards, which so far are not a mandatory kick off a market. For example: element of financial disclosure. Currently over 900 supporters strong, TCFD provides the most widely-accepted guidance Clean Skies for Tomorrow,58 an initiative developed by on how companies should report their climate risks. It thereby the International Civil Aviation Organization and the Mission creates much needed transparency for investors, and forces Possible Platform, brings players in the aviation industry companies to develop strategies that are resilient to a 2°C together with large-scale aviation customers and fuel suppliers world. to build critical demand for synthetic aviation fuels through coordinated offtake commitments. This enables fuel providers Building on the transparency from initiatives such as TCFD, to commit the needed investments in production capacity and investor coalitions can put pressure on companies to align airports to provide the necessary infrastructure. their strategies with a low-carbon world and invest in de-risking their portfolio and asset base. For example: Initiatives like Renewable Energy 100 (RE100)59 and Electric Vehicle 100 (EV100), in which member companies commit The Net-Zero Asset Owner Alliance,64 a coalition of to procuring 100% renewable power and electric vehicles, institutional investors with nearly $4 trillion under management, respectively, have been successful in accelerating demand for has committed to transition its portfolios to net-zero emissions green technologies and developing supporting infrastructure by 2050. Members include some of the largest insurers (e.g. for vehicle charging).60 and pension funds in the world, building critical scale to support longer-term decarbonization investments and the development of low-carbon business models.

20 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Climate Action 100+,65 a group of more than 370 The Step Up Coalition67 secures commitments from investors with $35 trillion in assets under management, corporates to decarbonize their supply chains (Scope 3 engages companies to commit to climate-related emissions). Scaling up this effort could provide a huge disclosure, to curb their own emissions and to develop lever for emission reductions, especially in consumer- more rigid internal carbon governance. facing companies under increasing public scrutiny to improve the environmental credentials of the products Finally, ecosystem action can help to leverage the power they sell to customers.68 Considering the relatively lower of public scrutiny in building momentum for emission cost increases borne by consumers of “greener” products reductions, and to signal commitments to action among vs the cost increases for producers of those products, large firms. For example: aligning the supply chain from the demand side could make decarbonization more feasible all along the value CDP66 is a not-for-profit organization that supports companies chain (see Figure 15), and will become increasingly to disclose their environmental and climate impacts. It aims important as consumers demand more transparency and to make environmental reporting and risk management a better carbon credentials from firms in the future. business norm, and to drive disclosure, insight and action towards a sustainable economy. In 2018, nearly 7,000 companies answered CDP questionnaires, disclosing data on emissions and their broader approach to climate change.

Figure 14: Ecosystems can help overcome barriers

Technology

SSAB, LKAB, Vattenfall and the Swedish gov't funded Coalitions (>50 members) to enable heavy industry & mobility to Green Steel production using H2 reach net zero by 2050 at cost of <0.5% global GDP

Market

Players from across the aviation value chain committing Companies working with governments to unlock finance for to buying/providing cleaner fuels for flights natural climate solutions in new & existing markets

Policy

Oil and gas majors required to set methane emission Over 900 supporters of voluntary, consistent climate- standards when they become members of OGCI related financial risk disclosures

Investors

Net-Zero Asset Owner Alliance

>370 investors with >$35 trillion under management Institutional investors ($4 trillion under management) committed engaging companies to curb emissions, improve disclosure to transitioning their portfolios to net-zero emissions by 2050 and governance

Society

Supporting companies to disclose their environmental and Coalition of companies setting supply chain standards - tracking climate impact, making reporting a business norm (close suppliers' absolute emission reduction targets and progress to 7,000 companies disclosed climate-related data via CDP in 2018)

Source: BCG analysis The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 21 Figure 15: End consumer cost increases of “green products” are limited

Cost increase for producers Cost increase for end consumers

Cement +100% +3% 1 tonne House

Chemicals1 >+50% +1% 1 tonne Soda bottle

Shipping >+100% 1 voyage Pair of jeans +1%

1. Ethylene case study, which assumes $1,000 per tonne of ethylene, but the price can vary greatly.

Source: Energy Transitions Commission, Mission Possible (2018)

As long as governments are failing or unwilling to regulate, ecosystem action can help amplify the impact of individual companies – by creating otherwise unattainable scale, by de-risking investments, by focusing buying power and by increasing public scrutiny. Nonetheless, even large private-sector coalitions cannot be long-term substitutions for robust policy measures. Such initiatives still rely on willing and committed individual actors, and the risk remains that there will be too few of these or that their commitment will be limited. These efforts are a great accelerator of change but are unlikely to deliver on the needed net-zero ambition on a global scale.

Therefore, major policy action from governments will be needed to solve this challenge, in the form of carbon pricing and much more stringent sector-level regulation.

22 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 4. A call for unilateral government regulation

In the end, Paris Agreement targets will be achievable only employees and investors, the long tail of companies that with serious policy action. Despite the significant progress undergo little or no public scrutiny is significant. Companies from corporate – and individual – frontrunners, the individual that do not have strong end-customer brands, are only case for change will likely remain too small for many to act, medium-sized or operate in countries with a limited focus especially at the pace that would be required to deliver on on climate make up a significant share of emissions – 50% Paris commitments. Getting to net zero therefore requires a of corporate emissions are not disclosed to CDP70 – but serious increase in government action, through meaningful have far fewer incentives to move unless they face regulatory carbon pricing, accompanied by sector-specific regulations. pressure. And as long as progress in multilateral negotiations remains slow, the best hope for achieving meaningful short-term A significant share of emissions are directly driven by progress is through governments acting unilaterally. For many individuals – through their choice of transportation, home countries, doing so would actually benefit their sector, and energy sources, food and daily purchases. To achieve the risks of losing industrial competitiveness are overstated. Paris targets, billions of people around the globe will need Providing regulatory clarity now will actually help corporations to make different choices, often against microeconomic to plan the transition ahead of time. However, for those incentives. Only regulation can shift these consumer habits countries that do move ahead unilaterally, protective action on the scale needed. would be needed to shield a few emission-intensive industries from international high-carbon competition. Ultimately, time has run out. Past inaction has dramatically increased the pace at which the world needs to decrease The Paris targets are achievable only with emissions. Complying with 1.5-2°C pathways would require serious policy action drastically reducing emissions in the next decade. Voluntary action and unregulated markets will not deliver that shift. In certain high-emitting sectors in industry and transport, Hence, governments need to step in to drive the change decarbonization costs will remain high. These sectors (see Figure 16). account for approximately 20% of global emissions69 and will require government regulation to support their transition to low- or zero-carbon technologies. Agricultural emissions are equally hard to address, given the fragmentation of We need to halve emissions in the next 10 suppliers and the price-competitive nature of a large share years. For that we urgently need bold political of their products. and corporate leadership and action. While many large companies have been motivated to act progressively on climate change thanks to public scrutiny and Henrik Poulsen, Chief Executive Officer, Ørsted, Denmark the desire to differentiate their brands vis-à-vis consumers,

Figure 16: Paris targets are not achievable without policy action

~20% ~50% ~30% ~45% of emissions come of corporate emissions of emissions are of emissions from hard-to-abate1 come from companies driven directly by must be cut in the sectors facing little public scrutiny2 end consumers3 next 10 years4

1. The hard-to-abate sectors are considered to be cement, steel, iron and other metals (including aluminium), aviation, shipping and chemicals (as per CAIT and IEA emissions data); 2. Emissions from companies that do not disclose to CDP (corporate emissions taken as all those that are not related to buildings, agriculture and light road transport); 3. End consumer emissions are considered to be emissions from buildings (cooking, power, heating/cooling), light road transport and agriculture (as per CAIT and IEA emissions data); 4. The IPCC Special Report on the impacts of global warming (2018) highlights the need to cut emissions by 45% by 2030 to keep warming below 1.5°C.

Sources: CDP 2018 emissions data; CAIT (World Resources Institute), latest data available at the country level; IEA, Tracking Clean Energy Progress 2017; BCG analysis

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 23 Governments need to act now, even if that Second, the risk of losing competitiveness mostly affects means acting unilaterally first only a few, very emission-intensive industry sectors; steel, primary metals and base chemicals are the industries Of course, cohesive multilateral policy coordination would most impacted. These are followed by cement, which has be the best solution for halting the climate crisis; decisive more limited leakage risk given the adverse economics of progress is therefore needed at COP26 in Glasgow in late longer distance transport. For aviation and shipping, the 2020. But given the slow pace of multilateral progress, risk of refuelling elsewhere is larger than the risk of full including at the latest COP25,71 and the complex current relocation. Taken together, these “leakable” sectors make geopolitical context, the reality is that a global consensus up around 20% of global emissions, but less than 4% of 75 will very likely not be established soon enough to counter world GDP (see Figure 17). the crisis. Individual governments therefore need to act unilaterally to achieve meaningful progress. And while this This is not to say that leakage risk can be ignored. In will not be sufficient to achieve global climate ambitions the absence of a global level playing field, progressive in the long run, it is the only realistic path to accelerating countries will need to safeguard affected industries emission reductions today. by imposing protective measures against high-carbon competition or supporting their emission reduction The good news is that fear of a “first-mover journeys. But a problem that affects less than a 20th disadvantage” for countries that take early action on of any country’s GDP should not prevent global climate carbon abatement is largely unfounded. Remarkable progress. Most countries are economically strong enough advances in low-carbon technologies are putting to support the decarbonization of these industries. And emission reductions in many sectors well within technical the industries are few enough in number that individual, and economic reach. For many countries, the benefits of tailored solutions can be implemented. higher investment activity and saved reductions in fossil fuel imports outweigh microeconomic costs. This effect holds stronger if a country is highly dependent on fossil fuel imports and the cheap cost of capital. As a result, Carbon pricing has proven to be one of the most there are a number of natural “willing actors” who would actually have an incentive to step forward unilaterally, effective tools to unlock the potential from the including some of the largest emitters on the planet private sector (companies as well as investors) (Europe, the United States, China, and others).72 The to support innovation and low-carbon growth. latest proposal of the European Green Deal, presented in Carbon pricing is only one of many elements December 2019 during COP25, is an example of decisive determining global competitiveness and plays unilateral action (by a small, coordinated coalition of countries).73 a smaller role than other factors, for instance, labour and infrastructure. The fear of losing economic competitiveness is overstated Feike Sybesma, Chief Executive Officer and Chairman of the Managing Board, Royal DSM, Netherlands One of the most common arguments against ambitious unilateral emission regulation is that it puts industry competitiveness at risk. When companies are forced to pay high carbon taxes in one country but not in others, they might move abroad to protect their competitiveness, thereby shifting the overall emissions but doing nothing to reduce them – a dynamic commonly known as “carbon leakage”. In countries that regulate, this would harm competitiveness and hence economic growth, whereas countries that do not regulate might even flourish from more industrial companies relocating there – a classic “prisoner’s dilemma”.

But while this threat is certainly real in principle, its extent is commonly overstated.

First, a 2019 report of the High-Level Commission on Carbon Pricing and Competitiveness recently found that setting appropriate sector-specific carbon taxes has only negligible impact on competitiveness.74 More importantly, a significant share of emissions is generated in sectors in which regulation has very manageable “leakage risks”, or none at all. For example, transportation, buildings and power generation are largely local sectors that are not in regional or global competition.

24 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Figure 17: Carbon leakage risk affects a small part of the economy

Cement, Steel, Chemicals, Aviation, Shipping Cement, Steel, Chemicals, Aviation, Shipping

4% All others1 18% 28% Power Share! of 44% Share! of emissions GDP

68% 38% Services All others1

1. All others includes construction and manufacturing of clay, glass, man-made fibres, plastics, rubber, as well as auto parts, which are downstream of some “at risk” sectors (e.g. steel, cement).

Sources: IEA; CAIT; UNEP, Emissions Gap Report 2018; OECD; IPCC; Oxford Economics; BCG analysis

The need for meaningful carbon pricing and One of the reasons governments so far have been loath to sector-level regulations and incentives is urgent implement strong carbon pricing schemes is fear of a lack of public acceptance – as witnessed by the gilets jaunes riots in So how can governments regulate emissions most France that began in November 2018. This concern should effectively? Unfortunately, no single silver-bullet solution be taken seriously. Consequently, ambitious carbon pricing exists. An ambitious policy framework would need to include schemes have worked best in places where governments meaningful carbon pricing, but also a number of sector- have combined them with mechanisms that ensured “fair” specific regulations and incentives promoting remedies such (for lack of a better word) social burden sharing and a as a switch from fossil fuels to renewable energies, electric just transition, through progressive phasing and effective mobility, efficiency, green building standards – supported redistribution mechanisms, as well as support for workers in by accelerated innovation. To ensure public acceptance, industries more heavily impacted by the transition. the policy framework would also need to ensure a fair distribution of the burden and protect the few industry For example, Policy Exchange, a centre-right UK policy sectors that suffered competitive imbalances otherwise. think tank, demonstrated that under a “carbon tax plus – per capita – carbon dividend” policy, the poorest citizens The first and most effective mechanism for governments to would actually be net beneficiaries, given they generate 81 enact is a meaningful price on carbon emissions. Carbon comparatively lower emissions than high earners do. While pricing is widely recognized to be the most impactful and the transition implies job losses for fossil fuel workers, jobs cost-effective way to decarbonize the economy76 and is will be created as new abatement technologies grow (the endorsed by every major multilateral institution, including the renewables industry now employs 10 million people globally, 82 International Monetary Fund, the UN and the World Bank. a rise of 50% since 2012 ). Studies suggest that to exert sufficient impact, the price of carbon needs to be set at levels of around $40-80 per And yet, carbon pricing is by no means sufficient to fully tonne, escalating to $50-100 by 2030.77 It is more effective steer the needed decarbonization of all economic sectors if price development is planned in advance to provide (see Figure 18). It is unlikely that the market will solve this investment security. And given that abatement costs differ challenge alone – unless carbon prices become significantly structurally sector-by-sector, sector-specific pricing might higher than what is currently being discussed. There are actually be the most effective strategy, even though there several reasons: are different schools of thought.78 Carbon pricing is typically progressive, but the abatement Despite such widespread endorsement, only a minority of costs of innovative technologies are not. To support the countries currently have carbon pricing in place – and many scale-up phase (for example of electric vehicles), carbon of those have not set it at a sufficiently high level. In a 2018 prices therefore do not set an adequate incentive. assessment, the OECD found that in 42 countries that have carbon prices in place, they are “falling well short of their Abatement costs differ quite significantly across sectors. potential to improve environmental and climate outcomes”.79 This means that carbon prices incentivize some sectors to The World Bank has demonstrated that less than 5% of move earlier than others, while in reality all would need to emissions are currently priced at levels consistent with start moving today to achieve carbon neutrality in 2050. reaching the temperature goals of the Paris Agreement.80

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 25 Sectors also differ in the way their emission reduction Finally, some market barriers are not easy for carbon pricing measures need to be incentivized over time. A faster shift to to overcome. For example, appliance efficiency has in electric vehicles needs significant regulatory support today, the past proven to be more effectively regulated through but much lower incentives going forward, due to strongly product standards. Similarly, the “owner-tenant problem” declining battery prices. On the other hand, incentives for could prevent principally economic investments in the citizens to isolate their residential buildings and change from building stock, unless specific instruments can address it. fossil fuels to electric heating need to remain very constant over time, given natural renovation and reinvestment cycles.

Carbon prices are unlikely to incentivize the significant investments in new infrastructure that will be required to sustain a low-carbon economy. Given the high pace of the needed transition, there is a risk that the speed of infrastructure transformation will be insufficient.

Figure 18: A carbon price is needed, as are sector-level regulations

Cross-sector Finance

Price carbon Protect against Eliminate fossil Mandate disclosure Incentivize Set meaningful (>€50 leakage subsidies Regulate for long-term view per tonne and growing) Implement measures Phase out all fossil fuel standardized emissions Incentivize asset and sector-specific to prevent leakage (e.g. subsidies disclosure and unify managers to take prices, with social border tax adjustments, ESG investment criteria, a longer view and “redistribution” product standards and and label carbon set monetary policy incentives) footprint for consumers (e.g. different capital reserves) to encourage green finance

Energy Transport Buildings Industry Land use & agri.

Phase out coal Incentivize EVs Regulate for 0-carbon Mandate efficiency Stop deforestation Stop building new coal Subsidize electric Set carbon neutral Impose BAT standards, Set clear targets and plants and accelerate vehicles and create standards for new dry clinker cement regulation against the ramp-down disincentives for internal buildings (e.g. ban coal, production, etc. deforestation combustion engines oil, gas boilers) Scale renewable Incentivize renewables Scale sustainable agri. energy & nuclear Invest in infrastructure Incentivize heat switch Incentivize the switch Incentivize sustainable Set ambitious Scale up public Incentivize the switch to biomass, power-to- practices and the renewables targets and transport, and invest in from fossil fuels to heat, etc. recycling of manure to accelerate nuclear charging, hydrogen and electric and district biogas catenary lines heating, insulation, Invest in R&D & CCUS Build smart grid automation Fund pilots in CCUS, Subsidize green infrastructure Scale low-carbon fuel Green H2, DRI (direct results Invest in smart grids and Incentivize e-fuels and Tighten standards reduced iron) steel, Link agricultural demand management biofuels, especially in Set stricter efficiency and develop CCUS subsidies to heavy road transport, standards on infrastructure "environmental

Target zero CH4 aviation, shipping appliances, e.g. lighting, outcomes" Set zero targets on white goods Procure green fugitive emissions products Regulate air con Set targets/mandates Mandate energy for public procurement performance standards of green alternatives and the management of refrigerant waste

Sources: Grantham Research Institute on Climate Change and the Environment; IPCC; IEA; IRENA; interviews conducted by BCG in Q3-4 2019; BCG analysis

26 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Governments therefore need to implement a suite of In parallel, a push for action on the world sector-level regulations to manage the transition efficiently stage is needed and to enable the full scale and pace of decarbonization 83 that is required. Policy-makers need to factor in financial Many countries can move individually with ambitious support for research and the expansion of innovative low- national policies that unite emission reductions with carbon technologies (such as new processes or materials economic prosperity and growth. Where national for steel and cement, hydrogen-based green fuels or governments are stalling, state, regional or city authorities CCUS), investments in low-carbon infrastructure (such as can make a difference by pushing action locally and through charging infrastructure, overhead lines, hydrogen or power alliances.88 Nonetheless, climate change is a global problem transmission) and subsidies for technologies that are still that ultimately demands a unified, global solution. on a learning curve (such as electric vehicles).84 They must also include incentives for the transition to renewables and/ It is therefore vital to continue to reinforce multilateral efforts or nuclear in the power sector, while maintaining sufficient in parallel to unilateral ones. These efforts need to recognize backup capacity for periods with no wind and no sun, as the diverse challenges that countries in different parts of the well as the use of rare biomass in the applications where it world are facing and to distribute the financial burden fairly. is most valuable. Ultimately, they likely also need to include Multilateral initiatives need to incentivize compliance and standards (e.g. on efficiency) and technology bans (such as disincentivize “free riding” by individual actors. But the more 85 on oil and gas heaters) to avoid stranded investments. governments move, both on their own and within trading blocs, and the more they make visible progress instead of just Finally, as long as the world as a whole is not moving in committing to ambitious long-term targets without follow- unison, ambitious national efforts will necessarily require through, the higher the pressure on others becomes to follow measures to protect emission-intensive industries from high- suit. After the lack of progress at the COP25 negotiations in 86 carbon, low-cost competition. Especially as technologies to Madrid in 2019, COP26 in Glasgow will be a vital test. decarbonize industries like steel, chemicals and others are still in the testing stage, this could happen through direct public support (for example via “contracts for difference”). In the medium term, carbon border tax adjustments for the most important products could ensure that carbon price differences between countries and trading blocs are eliminated.

Alternatively, countries can impose “product standards” for high-emission products sold on their territory, for example by imposing a share of zero-carbon steel that needs to be used in the construction or automotive industries. These would transfer the cost burden from industries where this makes a significant relative difference (e.g. steel, cement, plastics) to industries where it does not (e.g. automotive, construction, soda sales). As a report by the Energy Transitions Commission demonstrates, even very high additional costs from low-carbon materials for producers (e.g. +100% for cement) have an almost negligible impact on downstream cost increases for the ultimate consumers (e.g. +3% for a house built with green cement) (see Figure 15 in the previous section).87

Such “climate protectionism” measures will be necessary as long as no global level playing field exists, at least on the level of the G20. Ideally, however, these proposed measures are only a means to an end, designed to help realign global policies in line with the Paris Agreement goals that the world community has agreed to pursue.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 27 5. Individuals need to lead the change as consumers, voters and leaders

Consumers and voters – and public opinion in general Individuals can make a difference in – are the ultimate stakeholders of corporations and organizations and societies governments. Without a supportive societal context, corporations are unlikely to perceive the demand from Many emerging stories of progress are the result of customers and employees to reduce emissions or develop entrepreneurial initiative. From CEOs aligning their investors greener products, and governments are unlikely to enact and employees to ambitious net-zero targets, to young much-needed climate policy and regulations. Conversely, leaders forming global protest movements, there are plenty of consumer and voter concern about climate change has a examples of individuals taking action on climate change and strong impact on the way corporations operate. In many leading the organizations or societies that they are part of. Scandinavian countries, for example, a favourable social context and evolving customer behaviours are driving Individuals can impact political leadership – in their role politicians and CEOs to adopt net-zero targets and to as voters and by influencing public opinion. They can develop ambitious strategies that deliver on those targets. work “within the system” to drive change, in businesses, governmental institutions, non-governmental organizations Lifestyle choices can help reduce emissions and schools. Demonstrations, principally among the youth – who will soon join the voting population – have had impact Individuals can impact their own emissions through lifestyle at the national and international levels, and could continue choices, and reward companies that provide a “green to be a catalyst for climate action. choice” through their consumption decisions. Everyone can adopt such practices as: Education on climate issues and solutions is critical to accelerating climate action – Low-carbon homes. Better insulation, electric heating, more efficient appliances (especially air conditioning) and Despite frequent media coverage of climate change, a a switch to renewable power can enable “zero-carbon significant share of the global population remains under- living” already today. For example, double-glazing, loft informed or misinformed on the subject. While awareness and cavity wall insulation can reduce a semi-detached is increasing, access to information remains fragmented. household’s footprint by up to 20% (2 tonnes of CO 2 Also, a great deal of misleading information casts doubt on every year).89 established science and the impact of proven low-carbon – Different mobility habits. By flying less (especially long technologies, overstates the costs of climate action and haul) and switching to e-cars, public transport or bikes, downplays the grave long-term impact of global warming. average Westerners can address a significant share of their carbon footprint. One round-trip flight from London Educated voters and consumers are crucial enablers of the to Hong Kong SAR emits 2.9 tonnes of CO , as does a 2 low-carbon transition. The quality of information needs to half-year of commuting 30 km to and from work in an improve across all channels: in public opinion, the education average internal combustion engine car.90 system and also corporations and institutions. Communication – Sustainable consumption. Changing consumer should not just focus on the problem and its complexity but behaviours in product purchasing (e.g. in fashion, also on solutions and the positive outcomes of change. consumables) or services (e.g. sharing economy) can aggregate to affect corporate strategies and business models. Such habits show companies that they can profit from serving their customers more sustainably. – More sustainable diets. Switching to a plant-based diet would reduce the personal carbon footprint of an average US citizen by more than 40%. Substituting red

meat with chicken alone would reduce food-related CO2 emissions by more than 20%.

28 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 6. The way forward: An action plan for all stakeholders

The costs of natural disasters are on the rise. More frequent Ours is the last generation that can prevent global disaster. droughts are already hurting agricultural productivity even The need for action is immediate, and this report has in such mild regions as Central Europe. Ice shields in demonstrated that action is possible. It therefore falls upon West Antarctica and Greenland are starting to collapse. this generation of business, government and society leaders Wildfires and extreme weather events are increasing at to accelerate action individually and through collaboration unprecedented rates. (see Figure 19).

If unchecked warming continues, the consequences for human All stakeholders – corporations, governments, investors and, civilization will be severe. Rising sea levels could encroach on ultimately, individuals – can take unilateral initiative to lower coastal regions and could flood major regions and metropolitan emissions, often with positive economic implications. Collective areas before the end of this century. Extended heat waves actions can support and amplify individual ones. Where the could threaten food security for a growing world population, costs and risks of taking action for individual companies are while longer droughts could put access to drinking water higher (for example, in emission-intensive sectors), ecosystems at risk. Extreme weather events and changes to current of industry peers, value chain players or public-private ecosystems could produce millions of “climate refugees” and partnerships can work together, sharing the burden. cause a deterioration in global development and economic growth. According to the Intergovernmental Panel on Climate The world needs decisive action at every level to Change, the per-capita impact of “no action” on global GDP change the trajectory of ever-increasing emissions. In has been estimated at minus 30% as of 2100 – in other words, light of the facts, it should be viewed as an opportunity it would reduce global GDP per capita by 30% (vs minus for businesses, countries and individuals to create an 8% for 1.5°C of warming).91 This outlook, which is what will advantage in building a better, more sustainable world. happen if nothing is done, dwarfs the economic costs that climate action would have in any country. For many, investing in reducing emissions would even be a positive standalone business case.92

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 29 Figure 19: It is possible for everyone to act on the climate now

20 Climate Actions for 2020: 20 x 20 5 actions that any company, government, investor and individual can take unilaterally, now

Corporations Governments

1 Set ambitious targets 6 Set net-zero ambition

2 Reduce CO2 intensity 7 Define a roadmap with targets by sector

3 Assess climate risks 8 Set effective carbon pricing and incentives

4 Innovate business models 9 Set sector regulations and incentives

5 Engage stakeholders 10 Engage stakeholders

Investors Individuals

11 Push for transparency 16 Influence and lead

12 Scrutinize targets 17 Make your home green

13 Support long-term plans 18 Change mobility habits

14 Recalibrate valuations of risks 19 Buy greener products

15 Commit “green” capital 20 Have a sustainable diet

Source: BCG analysis

30 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Methodology

References to global emission trajectories were derived from Information on corporate and investor action was UNEP, IPCC and IEA reports (see the References section). developed through reference to CDP data from 2019, which corresponds to the CDP 2018 corporate survey, and The analysis of government policy was based on publicly through interviews with CEOs and experts from a range of available sources: industries and geographies.94

– Countries’ carbon-neutral ambition was assessed through – CDP data is voluntarily disclosed on an annual basis by reference to the United Nations Framework Convention on member companies (almost 7,000 in 2018). The data Climate Change (UNFCCC) Climate Ambition Alliance: Net includes both quantitative emissions disclosed for Scope Zero 205093 and government websites for countries that 1, 2 and 3, and a qualitative survey in which companies are already net zero (e.g. Bhutan) or aiming to be net zero respond to questions on a broad range of topics, from before 2050 (Norway). climate governance to target-setting and investment in – Sector roadmaps and targets were assessed by analysing abatement initiatives. the number of sectors on which the government had put – To supplement this analysis, interviews were conducted specific emission reduction targets, and how ambitious with 24 leading CEOs and executives and 13 climate they were. experts over a three-month period in the third and fourth – Policy frameworks were assessed through reference quarters of 2019 to identify barriers and drivers to climate to incentives and regulations, which go beyond action as well as recommendations on policy levers target-setting, to move the sector to action (e.g. the required to abate emissions across sectors. implementation of an overall carbon price, renewables – Information on the specifics of company climate incentives, energy efficiency mandates and deforestation initiatives and ecosystem alliances was researched regulations). in company annual and sustainability reports, press – Assessments were cross-checked against reports on releases and corporate websites. policy efficacy, including those written by Climate Action – The analysis on sector value added and the cost to abate Tracker and the International Monetary Fund. emissions in different sectors was based on information – Suggested government policies to support decarbonization, from Oxford Economics in Mission Possible (2018) and on including information on carbon pricing, were researched a previous analysis by Boston Consulting Group. in a wide range of published reports (see the References section) and through an analysis of GDP data from Oxford Information about public opinion on climate change was Economics and emissions data from the IEA. based on the September 2019 Ipsos “What Worries the World” survey and on desk research conducted by Boston Consulting Group.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 31 Contributors

World Economic Forum Acknowledgements

Dominik Breitinger Corporate interviews Project Lead, Climate Governance and Finance; Global Leadership Fellow Alan Belfield Executive Chairman, Arup Group, United Kingdom Emily Farnworth Head of Climate Change Initiatives Dick Benschop President and Chief Executive Officer, Royal Schiphol Group, Dominic Waughray Netherlands Managing Director, Centre for Global Public Goods Jose Luis Blasco Chief Sustainability Director, Acciona, Spain Boston Consulting Group Jean-François van Boxmeer Jens Burchardt Chairman and Chief Executive Officer, Heineken, Associate Director, Climate Impact Netherlands

Marco Duso Liam Condon Principal; President, Bayer Crop Science, Germany World Economic Forum Fellow Mark Cutifani Michel Fredeau Chief Executive Officer, Anglo American, United Kingdom Managing Director and Senior Partner Claudio Descalzi Miranda Hadfield Chief Executive Officer, Eni, Italy Consultant Suzanne DiBianca Patrick Herhold Chief Impact Officer, Salesforce, USA Managing Director and Partner Maarten van Dijk Cornelius Pieper Chief Executive Officer, SkyNRG, Netherlands Managing Director and Partner Stefan Doboczky Chief Executive Officer, Lenzing Group, Austria

Sergio Ermotti Group Chief Executive Officer, UBS, Switzerland

Katherine Garrett-Cox Chief Executive Officer, Gulf International Bank UK, United Kingdom

Mats Granryd Director-General, GSMA, United Kingdom

Alan Jope Chief Executive Officer, Unilever, United Kingdom

Rich Lesser Global Chief Executive Officer, Boston Consulting Group, USA

Takeshi Niinami Chief Executive Officer, Suntory Holdings, Japan

32 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Torben Möger Pedersen Robert Schuwerk Chief Executive Officer, PensionDanmark, Denmark Executive Director, North America, Carbon Tracker, USA

Duncan Pollard Paul Simpson Chief Sustainability Officer, Nestlé, Switzerland Chief Executive Officer, CDP, United Kingdom

Henrik Poulsen Nigel Topping Chief Executive Officer, Ørsted, Denmark Chief Executive Officer, We Mean Business (2015-2019), United Kingdom Eric Rondolat Chief Executive Officer, Signify, Netherlands Lord Adair Turner Chairman, Energy Transitions Commission, United Kingdom Mahendra Singhi Chief Executive Officer, Dalmia Cement, India

Sumant Sinha Chairman and Managing Director, ReNew Power, India

Francesco Starace Chief Executive Officer and General Manager, Enel, Italy

Feike Sybesma Chief Executive Officer and Chairman of the Managing Board, Royal DSM, Netherlands

Climate experts

Sharan Burrow General Secretary, International Trade Union Confederation (ITUC), Belgium

Jennie Dodson Head, Mission Innovation Secretariat, Business, Energy and Industrial Strategy Department, United Kingdom

Christiana Figueres Executive Secretary, UN Framework Convention on Climate Change, Bonn (2010-2016); Founding Partner, Global Optimism, United Kingdom; Mission 2020 Convenor

Ted Halstead Chief Executive Officer, Climate Leadership Council, USA

Daniel Klingenfeld Head, Directors’ Staff, Potsdam Institute for Climate Impact Research (PIK), Germany

Peggy Liu Chairperson, Joint US-China Collaboration on Clean Energy (JUCCCE), People’s Republic of China

Mindy Lubber President, Ceres, USA

Maria Mendiluce Managing Director, Climate and Energy, Cities and Mobility and Circular Economy, World Business Council for Sustainable Development (WBCSD), Switzerland

Dennis Pamlin Senior Adviser, RISE Research Institutes of Sweden; Mission Innovation, Sweden

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 33 References

Major reports

– Boston Consulting Group, “The Economic Case for Combating Climate Change”, 2018. – Boston Consulting Group, “Flipping the Script on Climate Action”, 2019. – Burke, Joshua, Rebecca Byrnes and Sam Fankhauser, How to price carbon to reach net-zero emissions in the UK, Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy, London School of Economics and Political Science, 2019. – Burke, Marshall et al., “Large potential reduction in economic damages under UN mitigation targets”, Nature, vol. 557, 2018. – Carbon Pricing Leadership Coalition, Report of the High-Level Commission on Carbon Prices, 2017. – Carbon Pricing Leadership Coalition, Report of the High-Level Commission on Carbon Pricing and Competitiveness, International Bank for Reconstruction and Development/the World Bank, 2019. – Carbon Tracker, Unburnable Carbon, 2011. – Carbon Trust, “The Business of Energy Efficiency”, 2010. – CDP, "Major risk or rosy opportunity: Are companies ready for climate change?", 2019. – Citi GPS: Global Perspectives & Solutions, ENERGY DARWINISM II: Why a Low Carbon Future Doesn’t Have to Cost the Earth, Citigroup, 2015. – Climate Leadership Council, “The case for an economy-wide carbon fee”, White Paper, 2019. – Energy Transitions Commission, Mission Possible: Reaching Net-Zero Carbon Emissions from Harder-to-Abate Sectors by Mid-Century, 2018. – Exponential Roadmap, Scaling 36 Solutions to Halve Emissions by 2030, 2019. – Institute of International Finance, “Sustainable Finance in Focus: Green Is The New Gold”, 2019. – Intergovernmental Panel on Climate Change (IPCC), Global Warming of 1.5°C, 2018. – International Renewable Energy Agency (IRENA), Renewable Energy and Jobs: Annual Review 2018, 2018. – Ipsos MORI, “What Worries the World – September 2019”, 2019. – IRENA, “Stranded assets and renewables: How the energy transition affects the value of energy reserves, buildings and capital stock”, Working Paper, 2017. – Klenert, David et al., “Making Carbon Pricing Work for Citizens”, Working Paper No. 2017-11, Institute for New Economic Thinking, Oxford Martin School, 2017. – Mercator Research Institute on Global Commons and Climate Change (MCC) and Potsdam Institute for Climate Impact Research (PIK), Options for a Carbon Pricing Reform, 2019. – Muldoon-Smith, Kevin and Paul Greenhalgh, “Suspect foundations: Developing an understanding of climate-related stranded assets in the global real estate sector”, Energy Research & Social Science, vol. 54, 2019. – Organisation for Economic Co-operation and Development (OECD), Taxing Energy Use 2018, 2018. – Organisation for Economic Co-operation and Development (OECD) and the World Bank Group (WBG), The FASTER Principles for Successful Carbon Pricing: An approach based on initial experience, 2015. – Policy Exchange, The Future of Carbon Pricing: Implementing an independent carbon tax with dividends in the UK, 2018. – United Nations Environment Programme (UNEP), Emissions Gap Report 2019, 2019. – World Bank, “State and Trends of Carbon Pricing”, 2019. – World Economic Forum, “Stakeholders for a Cohesive and Sustainable World: The Role of Lighthouse Projects”, Briefing Paper, 2020.

34 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action Endnotes

1. Intergovernmental Panel on Climate Change (IPCC), “Summary for Policymakers”, in Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty, 2018, https://www.ipcc.ch/sr15/chapter/spm. 2. According to the 13 December 2019 list of countries that submitted their intention to reach net zero by 2050, received from the office of the High Level Climate Champion of COP25, United Nations Framework Convention on Climate Change (UNFCCC). 3. Analysis of CDP data from 2019 (6,937 companies voluntarily disclosed emissions and responded to a survey on climate action).

4. This includes CO2 emissions of approximately 37.5 Gt and 17.8 Gt of CO2e emissions from other GHGs including

methane (CH4) and nitrous oxide (N2O). See UNEP, Emissions Gap Report 2019, https://www.unenvironment.org/ resources/emissions-gap-report-2019. 5. Other GHG emissions must also dramatically decrease: the IPCC 1.5°C path assumes a reduction of approximately

50% CH4, 30% N2O and 60% black carbon emissions by 2050 vs 2010 levels. 6. International Energy Agency (IEA), “Global energy demand rose by 2.3% in 2018, its fastest pace in the last decade”, 26 March 2019. 7. Energy Transitions Commission, Mission Possible: Reaching Net-Zero Carbon Emissions from Harder-to-Abate Sectors by Mid-Century, 2018, http://www.energy-transitions.org/mission-possible. 8. Ibid. 9. COP25, “Annex: Enhanced ambition in national climate plans”, 3 October 2019, https://cop25.cl/#/cop- news/6uwx6gJHfSFV5TdOF6r9. 10. President Donald Trump has referred to climate change as a “hoax” and has vowed to take the USA out of the Paris Agreement. 11. Many countries that have set a net-zero ambition lack the set of policies that would enable them to fully decarbonize. For example, in Germany, the long-awaited “climate package” falls far short of the possible and required ambition on emission reductions. 12. Swedish government websites: Naturvårdsverket (Swedish Environmental Protection Agency), “Sweden’s Climate Act and Climate Policy Framework”, http://www.swedishepa.se/Environmental-objectives-and-cooperation/Swedish- environmental-work/Work-areas/Climate/Climate-Act-and-Climate-policy-framework-/; Klimatpolitiska rådet (Swedish Climate Policy Council), “The Swedish Climate Policy Council”, https://www.klimatpolitiskaradet.se/summary-in-english. 13. Government Offices of Sweden, “Sweden’s carbon tax”, January 2019, https://www.government.se/governmentpolicy/ taxes-and-tariffs/swedens-carbon-tax. 14. The Government of Sweden funded one-third of the pilot costs of Hybrit, a project to create zero-emission steel using green hydrogen, established by the LKAB mining company, the multinational power company Vattenfall and steel company SSAB. 15. Sweden has contributed more to the UN Green Climate Fund than any other nation per capita: 4 billion Swedish krona (€400 million) allocated for 2015-2018. See Sweden Sverige, “Sweden Tackles Climate Change”, October 2018, https://sweden.se/nature/sweden-tackles-climate-change. 16. Government of the Netherlands, “Climate Agenda: Resilient, Prosperous, and Green”, https://www.government.nl/ topics/climate-change/documents/reports/2014/02/17/climate-agenda-resilient-prosperous-and-green. 17. Rijkswaterstaat Environment, Ministry of Infrastructure and Water Management, “Mid-sized Combustion Plants”, https://rwsenvironment.eu/subjects/air/mid-sized-combustion; NL Agency, Ministry of Economic Affairs, Agriculture and Innovation, “LTA: Long-Term Agreements on energy efficiency in the Netherlands”, https://www.rvo.nl/sites/default/ files/bijlagen/2MJAP1171_Long_Term_Agreements.pdf. 18. World Economic Forum, “Morocco is building a giant thermosolar farm in the Sahara Desert”, Agenda, 1 May 2018, https://www.weforum.org/agenda/2018/05/morocco-is-building-a-solar-farm-as-big-as-paris-in-the-sahara-desert. 19. United Nations Framework Convention on Climate Change (UNFCCC), “Climate Ambition Alliance: Nations Renew their Push to Upscale Action by 2020 and Achieve Net Zero CO2 Emissions by 2050”, 11 December 2019, https://unfccc.int/news/climate-ambition-alliance-nations-renew-their-push-to-upscale-action-by-2020-and-achieve-net-zero.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 35 20. C40 Cities, Deadline 2020 – How Cities Will Meet the Paris Agreement, https://www.c40.org/other/deadline_2020. 21. As of 4 November 2019, the Argentine Network of Municipalities against Climate Change (RAMCC) increased the ambition of its actions, setting a target of carbon neutrality for 2050. The RAMCC is “an instrument for the coordination and promotion of local public policies fighting climate change in Argentina’s cities and towns”. See https://www.ramcc.net/en/posts/view/484/the-argentine-network-of-municipalities-against-climate-change-defines- its-strategy-to-gain-international-resources. 22. Boston Consulting Group, “The Economic Case for Combating Climate Change”, 2018, https://www.bcg.com/engb/ publications/2018/economic-case-combating-climate-change.aspx. 23. COP25, “Annex: Enhanced ambition in national climate plans”, op. cit. 24. Ibid. Certified B Corps are part of a community of 3,000 businesses that meet the highest verified standards of social and environmental performance, transparency and legal accountability. 25. A total of 6,937 companies answered the 2018 CDP questionnaire, of which only about 33% said they were fully disclosing their emissions (not excluding sites/facilities from their disclosure). 26. Targets classified as short term are those with a target date of 2025 or earlier, while those classified as long term have a target date of 2026 to 2050. 27. Climate Action 100+ [website], “About Us”, https://climateaction100.wordpress.com/about-us. 28. United Nations Environment Programme (UNEP), UN-convened Net-Zero Asset Owner Alliance [website], https://www.unepfi.org/net-zero-alliance. 29. Institute of International Finance, “Sustainable Finance in Focus: Green Is The New Gold”, 2019, https://www.iif.com/ Publications/ID/3557/Sustainable-Finance-in-Focus--Green-Is-The-New-Gold. 30. 24 CEOs and 13 climate experts were interviewed by BCG and the World Economic Forum between August and November 2019. 31. Task Force on Climate-related Financial Disclosures [website], https://www.fsb-tcfd.org. 32. Ipsos MORI, “What Worries the World – September 2019”, https://www.ipsos.com/en/what-worries-world- september-2019. 33. Ibid, BCG analysis of Ipsos MORI data. 34. See the “Acknowledgements” in the Contributors section for the complete list of CEOs and experts. 35. International Energy Agency (IEA), “Methane Tracker”, July 2019, https://www.iea.org/reports/methane-tracker/ methane-abatement. 36. Carbon Trust, “The Business of Energy Efficiency: A paper from Carbon Trust Advisory Services”, 2010, https://cn.carbontrust.com/media/135418/cta001-business-of-energy-efficiency.pdf. 37. RE100 [website], http://there100.org. 38. International Renewable Energy Agency (IRENA), “Falling Renewable Power Costs Open Door to Greater Climate Ambition”, Press release, 29 May 2019, https://www.irena.org/newsroom/pressreleases/2019/May/Falling- Renewable-Power-Costs-Open-Door-to-Greater-Climate-Ambition. 39. Boston Consulting Group, Total Societal Impact: A New Lens for Strategy, 25 October 2017, https://www.bcg.com/ publications/2017/total-societal-impact-new-lens-strategy.aspx. 40. CDP, “Surge in climate leadership, as Apple, Honda, Microsoft, & others awarded for tackling emissions in the supply chain”, 29 January 2018, https://www.cdp.net/en/articles/media/surge-in-climate-leadership-as-apple-honda- microsoft-others-awarded-for-tackling-emissions-in-the-supply-chain. 41. Indian cement companies are subject to government regulations, which have allowed them to become some of the most efficient cement producers in the world, as described by Carbon Brief. The market-based Perform, Achieve and Trade (PAT) scheme (see https://beeindia.gov.in/content/pat-cycle) is its main initiative. This limits the consumption of energy-intensive industries, including thermal power plants, iron and steel, and cement (see https://www.carbonbrief. org/qa-why-cement-emissions-matter-for-climate-change). Overachievers can sell their energy saving certificates (see https://beeindia.gov.in/sites/default/files/brieflaunchevent%20%281%29.pdf) to those that have fallen short. See “The Carbon Brief Profile: India”, https://www.carbonbrief.org/the-carbon-brief-profile-india. 42. Global CCS Institute, “Dalmia Cement (Bharat) Limited and Carbon Clean Solutions team up to build cement industry’s largest Carbon Capture plant”, 20 September 2019, https://www.globalccsinstitute.com/news-media/latest-news/ dalmia-cement-bharat-limited-and-carbon-clean-solutions-team-up-to-build-cement-industrys-largest-carbon- capture-plant.

36 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 43. Walmart, “Project Gigaton”, https://www.walmartsustainabilityhub.com/project-gigaton; Walmart, “Walmart on Track to Reduce 1 Billion Metric Tons of Emissions from Global Supply Chains by 2030”, 8 May 2019, https://corporate. walmart.com/newsroom/2019/05/08/walmart-on-track-to-reduce-1-billion-metric-tons-of-emissions-from-global- supply-chains-by-2030. 44. Financing has a direct impact vs the business-as-usual baseline. 45. IRENA puts the book value of assets across upstream and power generation assets at $5-10 trillion by 2050, with the range reflecting whether policies to reduce the production of fossil fuels are enacted immediately or delayed to 2030. See International Renewable Energy Agency (IRENA), “Stranded assets and renewables: How the energy transition affects the value of energy reserves, buildings and capital stock”, 2017. 46. IRENA valued industrial heat process equipment that would need to be changed and the floor space of building stock that would need to be retrofitted to be compliant with required energy efficiency improvements to accommodate a 2°C emissions trajectory in their models. 47. See Unilever, “Explainer: what is carbon pricing and why is it important?”, 31 July 2018, https://www.unilever.com/ news/news-and-features/Feature-article/2018/explainer-what-is-carbon-pricing-and-why-is-it-important.html, in which the company outlines its initiative. 48. Enel, “Enel 2020-2022 Strategic Plan: Maximising Value through Sustainability”, Press release, 26 November 2019, https://www.enel.com/content/dam/enel-common/press/en/2019-November/Enel%20Strategic%20Plan%20 2020%202022%20ENG.pdf. 49. By 2022, Enel is expected to develop 14.1 GW of new renewable capacity (22% more than its previous plan) and reduce coal capacity and production by 61% and 74%, respectively, vs 2018. 50. Enel, “Sustainability means value”, 23 September 2019, https://www.enel.com/stories/a/2019/09/sustainability- businesses-environmental-economic-value. 51. Mission Innovation, “Towards >60 Gigatonnes of Climate Innovations”, https://www.misolutionframework.net. 52. Citi GPS: Global Perspectives & Solutions, ENERGY DARWINISM II: Why a Low Carbon Future Doesn’t Have to Cost the Earth?, 2015. 53. World Economic Forum, “Stakeholders for a Cohesive and Sustainable World: The Role of Lighthouse Projects”, Briefing Paper, 2020, http://www3.weforum.org/docs/WEF_Lighthouse_Project_Report.pdf. 54. Energy Transitions Commission, Mission Possible, op. cit. 55. Ibid. 56. Hybrit, “An initiative that can revolutionize steelmaking”, http://www.hybritdevelopment.com. 57. World Economic Forum, “Mission Possible Platform”, https://www.weforum.org/mission-possible. 58. International Civil Aviation Organization (ICAO), “Clean Skies for Tomorrow”, https://www.icao.int/environmental- protection/Documents/HLPF%20-%20side%20event/CW_WEF_Clean%20Skies%20for%20Tomorrow.pdf. 59. RE100, “Barclays commits to source 100% renewable electricity for its global operations by 2030”, 5 June 2019, http://there100.org/news/14288101. 60. EV100 progress highlights member companies that report making infrastructure investments to enable fleet charging. See The Climate Group, “Business Driving Demand for Electric Vehicles – EV100 Progress and Insights Annual Report 2019”, 4 February 2019, https://www.theclimategroup.org/news/business-driving-demand-electric-vehicles. 61. Oil and Gas Climate Initiative (OGCI), Strategy and Policy, “We develop collective engagements and targets”, https://oilandgasclimateinitiative.com/policy-and-strategy. 62. Carbon Pricing Leadership Coalition [website], https://www.carbonpricingleadership.org. 63. The Task Force on Climate-related Financial Disclosures (TCFD) has over 930 supporters as of December 2019. See TCFD, “TCFD Supporters”, https://www.fsb-tcfd.org/tcfd-supporters. 64. United Nations Environment Programme Finance Initiative, “UN-convened Net-Zero Asset Owner Alliance”, https://www.unepfi.org/net-zero-alliance. 65. Climate Action 100+, “Investors”, https://climateaction100.wordpress.com/investors. 66. CDP [website], https://www.cdp.net/en. 67. The Step Up Coalition, “Step Up Declaration”, https://stepupdeclaration.org/thecoalition. 68. Supply chain emissions for consumer products are often several times higher than the direct (Scope 1 and 2) emissions created by the end-stage manufacturing or retail of those products (CDP reports that Scope 3 emissions are on average four times those of Scopes 1 and 2).

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 37 69. These sectors include cement, steel, chemicals, shipping and aviation. See International Energy Agency, World Energy Outlook 2018; UNEP, Emissions Gap Report 2019. 70. CDP 2018 data. 71. COP25, “Annex: Enhanced ambition in national climate plans”, op. cit. 72. Boston Consulting Group, “The Economic Case for Combating Climate Change”, op. cit. 73. European Commission, “A European Green Deal”, https://ec.europa.eu/info/strategy/priorities-2019-2024/european- green-deal_en. 74. Carbon Pricing Leadership Coalition, Report of the High-Level Commission on Carbon Pricing and Competitiveness, International Bank for Reconstruction and Development/the World Bank, 2019, https://openknowledge.worldbank. org/bitstream/handle/10986/32419/141917.pdf. 75. The emissions data was taken from CAIT (World Resources Institute) and the percentage of GDP data originates from Oxford Economics. 76. Economists point to two ways to implement a carbon price: 1) a carbon tax, at the point of production or consumption; or 2) a cap-and-trade system of carbon credits. The European Association of Environmental and Resource Economists (EAERE) argues for a tax (see the “Economists’ Statement on Carbon Pricing” at https://www.eaere.org/statement), as permitting for carbon credits has proven hard (as the EU Emissions Trading System has shown), causing volatility and uncertainty for business, and the complexity of trading schemes leaves the process of permit trading open to exploitation by rent-seeking “vultures”. 77. As Nobel laureate Joseph Stiglitz argues in the Report of the High-Level Commission on Carbon Prices, https://www.carbonpricingleadership.org/report-of-the-highlevel-commission-on-carbon-prices; International Monetary Fund, IMFBlog, “Fiscal Policies to Curb Climate Change”, 10 October 2019, https://blogs.imf. org/2019/10/10/fiscal-policies-to-curb-climate-change. 78. The Grantham Research Institute on Climate Change and the Environment in How to price carbon to reach net-zero emissions in the UK (2019) argues for sector-specific prices, suggesting that, “There may be differences in price levels between sectors to account for differing contexts”. See http://www.lse.ac.uk/GranthamInstitute/wp-content/ uploads/2019/05/GRI_POLICY-REPORT_How-to-price-carbon-to-reach-net-zero-emissions-in-the-UK.pdf. The Energy Transitions Commission in Mission Possible (2018) suggests that policy can be “differentiated by sector to reflect different marginal abatement costs and technology readiness, with for instance far higher carbon price applied in shipping and aviation than to the materials-producing industrial sectors”. See http://www.energy-transitions.org/ sites/default/files/ETC_MissionPossible_FullReport.pdf. The OECD and World Bank also discuss sector-specific prices and free allocations in The FASTER Principles for Successful Carbon Pricing” (2015). See http://documents.worldbank.org/curated/en/901041467995665361/ pdf/99570-WP-PUBLIC-DISCLOSE-SUNDAY-SEPT-20-4PM-CarbonPricingPrinciples-1518724-Web.pdf. Meanwhile, the Climate Leadership Council in “The case for an economy-wide carbon fee” White Paper (2019) suggests that “to make carbon pricing more effective, governments should implement a truly economy-wide price on

CO2 emissions by eliminating sectoral omissions and special treatment of high-emitting industries”. See https://clcouncil.org/media/The-Case-For-An-Economy-Wide-Carbon-Fee.pdf. MCC and PIK in Options for a Carbon Pricing Reform (2019) suggest that “A cross-sectoral single price should become the core instrument of climate policy”, but recognize that “dynamic incentives of carbon pricing can be distorted by market or policy failures. Therefore, a carbon price path should be complemented by sector-specific policy instruments and measures that specifically correct these failures” (e.g. investments in infrastructure and regulations/standards). See https://www.mcc-berlin.net/fileadmin/data/B2.3_Publications/Working%20Paper/2019_ MCC_Options_for_a_Carbon_Pricing_Reform_ExecSum_final.pdf. 79. Organisation for Economic Co-operation and Development (OECD), Taxing Energy Use 2018, 2018, https://www.oecd-ilibrary.org/taxation/taxing-energy-use-2018_9789264289635-en. 80. World Bank, “State and Trends of Carbon Pricing”, 2019, http://documents.worldbank.org/curated/ en/191801559846379845/pdf/State-and-Trends-of-Carbon-Pricing-2019.pdf. 81. Klenert, David et al., “Making Carbon Pricing Work for Citizens”, Working Paper No. 2017-11, Institute for New Economic Thinking, Oxford Martin School, 2017. The Committee on Climate Change also showed in 2017 that UK low-carbon policies added just over £100 to household bills in 2016, which was more than offset by improvements in energy efficiency that have saved the typical household around £290 per year since 2008. 82. International Renewable Energy Agency (IRENA), Renewable Energy and Jobs: Annual Review 2018, 2018, https://irena.org/-/media/Files/IRENA/Agency/Publication/2018/May/IRENA_RE_Jobs_Annual_Review_2018.pdf. 83. Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy, How to price carbon to reach net-zero emissions in the UK, 2019: “To ensure full decarbonisation, this carbon price must be complemented by regulation, technology support and incentives for negative emissions to remove residual carbon dioxide from the atmosphere.”

38 The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 84. Jenkins, Kirsten and Debbie Hopkins (Eds), Transitions in Energy Efficiency and Demand: The Emergence, Diffusion and Impact of Low-Carbon Innovation, Routledge, 2018, pp. 21-25. 85. Muldoon-Smith, Kevin and Paul Greenhalgh, “Suspect foundations: Developing an understanding of climate-related stranded assets in the global real estate sector”, Energy Research & Social Science, vol. 54, 2019, pp. 60-67. 86. Policy Exchange, The Future of Carbon Pricing, 2018, https://policyexchange.org.uk/wp-content/uploads/2018/07/ The-Future-of-Carbon-Pricing.pdf. 87. Energy Transitions Commission, Mission Possible, op. cit. 88. For example, the Carbon Neutral Cities Alliance, https://carbonneutralcities.org. 89. Committee on Climate Change (CCC), Fourth Carbon Budget Review – technical report, Chapter 3: Reducing emissions from buildings, https://www.theccc.org.uk/wp-content/uploads/2013/12/1785b-CCC_TechRep_Singles_ Chap3_1.pdf. 90. Carbon Footprint, “Car carbon footprint calculator”, https://calculator.carbonfootprint.com/calculator.aspx?lang=en- GB&tab=4. 91. Burke, Marshall et al., “Large potential reduction in economic damages under UN mitigation targets”, Nature, vol. 557, 2018, pp. 549-553; IPCC, Global Warming of 1.5°C, 2018. 92. Boston Consulting Group, “Flipping the Script on Climate Action”, 2019; Boston Consulting Group, “The Economic Case for Combating Climate Change”, 2018. 93. United Nations Framework Convention on Climate Change (UNFCCC), Non-state Actor Zone for Climate Action (NAZCA), Climate Ambition Alliance: Net Zero 2050, https://climateaction.unfccc.int/views/cooperative-initiativedetails. html?id=94. 94. The full list is available in the Contributors section.

The Net-Zero Challenge: Fast-Forward to Decisive Climate Action 39

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